bearish

China Stimulus Update – Centralization of Debt Still Means MORE Debt!

639 Views25 Oct 2023 17:38

Boomeranged on Fri, 3 Nov 2023 15:36

China just can't get a break. The Caixin Manufacturing PMI fell below 50 again in October, while the Services PMI is stuck just above that level. China will add another CNY 1 trillion in stimulus, trying to get out of the ongoing real estate recession, pushing its budget deficit for this year to a whopping 7%+. Meanwhile, the PBoC, must continue selling USD to prevent the Yuan from weakening.

SUMMARY

The latest wave of China stimulus not only confirms the dire financial state of local governments but also indicates that they have reached the limits of their borrowing capacity.
China President Xi’s visit to the PBoC raises the likelihood of new interest rate cuts and cuts in the Required Reserve Ratio for banks.
This puts the PBoC in a precarious state. No easing means the property recession continues, while the opposite means it must sell more US dollar assets to prevent yuan depreciation.

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