China's central bank is set to pump a net 662 billion yuan ($106.3 billion) into the banking system this week through regular open-market operations, marking a record weekly liquidity injection in a bid to meet surging cash demand ahead of the Lunar New Year holiday, traders said Thursday.The People's Bank of China is offering CNY410 billion worth of 14-day reverse repurchase agreements, a short-term lending facility, they said.It injected a net CNY59 billion last week via its regular open-market operations after draining a net CNY49 billion the week before.
When the PBOC creates yuan, it expands the money supply. It is therefore this expansion in the money supply, not an artificially low currency per se that is creating price inflation in China.
That’s because, just as in the West, the Chinese government is engaging in a giant game of “extend and pretend.” Chinese banks have just rolled over 75% of all loans to local governments, which were supposed to have been repaid by the end of 2012.We’re talking about at least 3 trillion Chinese Yuan, or nearly half a TRILLION dollars worth of debt. It’s an enormous burden.