China Macroeconomics & Academia

Christopher Balding

Macroeconomics

<p>A compelling takeaway from all of this is that Chinese banks remain heavily dependent on interbank and PBOC liquidity provision. We believe the significant increase seen in the repo market the last few months is indicative of the dependence on RMB liquidity. Interbank repo trading now tops roughly 3 trillion a day in China. </p><p>A fundamental take away we believe, is that banks in China are chasing liquidity.  NCD issuance in China has topped 7 trillion RMB already this year with a weighted interest rate of 4.6% and greater than 6 month duration.  Regular deposit growth is not keeping pace with the rapid expansion of bank loan books and continues to place pressure on bank capital levels.  This at least partially explains why RRR continues to be cut to provide banks greater self funding liquidity.</p>

A compelling takeaway from all of this is that Chinese banks remain heavily dependent on interbank and PBOC liquidity provision. We believe the significant increase seen in the repo market the last few months is indicative of the dependence on RMB liquidity. Interbank repo trading now tops roughly 3 trillion a day in China. A fundamental take away we believe, is that banks in China are chasing liquidity.  NCD issuance in China has topped 7 trillion RMB already this year with a weighted interest rate of 4.6% and greater than 6 month duration.  Regular deposit growth is not keeping pace with the rapid expansion of bank loan books and continues to place pressure on bank capital levels.  This at least partially explains why RRR continues to be cut to provide banks greater self funding liquidity.

Wholesale Funding Remains Vitally Important to Chinese Banks