Photographer: Billy HC Kwok / Bloomberg
Photographer: Billy HC Kwok / Bloomberg
A chill swept through China’s financial markets after the central bank withdrew cash from the banking system and an official warned of asset bubbles.
People’s Bank of China emptied about $ 12 billion on Tuesday through open market operations. The decision was unusual in the weeks leading up to the Lunar New Year holiday, which falls in mid-February in 2021, as residents usually need more money to pay for travel and seasonal gifts. It was also against the recent reports in Chinese newspapers that liquidity would not be tightened before the holidays.
While Tuesday’s withdrawal was small in isolation, it added to the signs that Beijing is wary of how cheap and abundant liquidity has fueled excess markets. Said PBOC councilor Ma Jun Local media at risk of asset bubbles – such as the stock market or real estate – will remain if China does not focus on job growth and managing inflation instead.
Read: The Pandemic-era central bank is creating bubbles everywhere
The reaction has been particularly brutal on the Hong Kong stock market, where land funds have helped support a global rally. Continental investors bought a net share of $ 250 billion ($ 32 billion) of Hong Kong shares this year through Monday, nearly 40 percent of last year’s total, and were buyers again on Tuesday. The Hang Seng Index fell 2.6% from its highest level in June 2018, driven by a 7.2% decline in Hong Kong Exchanges & Clearing Ltd. and 6.3% dive in Tencent Holdings Ltd.
In mainland markets, an indicator of interbank lending costs rose 36 basis points to 2.78% on Tuesday, the highest level in a year. China’s future government bonds maturing in a decade were poised for the biggest decline in September, while the CIS 300 index of shares in Shanghai and Shenzhen, approaching the 2007 record, fell 2%.
“PBOC wants to lift investors out of the euphoria caused by abundant liquidity in December,” said Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. “PBOC is unlikely to weaken its stock market strings at least this week, which will make the liquidity of a month very tight.”
PBOC Governor Yi Gang on Monday He said the central bank would try to sustain economic growth while limiting risks to the financial system – a continuation of its existing political stance. Yi said China’s total debt-to-output ratio rose to about 280% at the end of last year.
Tencent’s decline came after stocks rose 11% on Monday, the best day of 2011, to approach a market value of billions of dollars. With over one billion people using its WeChat social networking platform, Tencent is ubiquitous for Chinese investors who do not have access to rival shares in Hong Kong. Alibaba Group Holding Ltd. through trading links.
– With the assistance of Jeanny Yu