I pointed out in last week that media, backed by the consensus, have been saying that China’s economy has been “recovering”. Such has been linked to the resurgent stock market as reflected by the Shanghai index
On the other hand, I have been pointing out that China’s government has been engaged in stealth stimulus via State Owned Enterprises (SoE) and from the PBoC which has been artificially boosting statistical recovery and has prompted for asset inflation.
Ironically the so-called recovering China has been reported to require another bout of record interventions from China’s central bank, the People’s Bank of China (PBOC) which has been slated for this week.
From the NASDAQ
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.
China’s government recently has been pinning the blame of easing policies, as well as currency wars, on developed economies that has led to domestic “imported inflation”. The reality is that there is no such thing as imported inflation. China’s concern over the growing risk of price inflation is a function of domestic policies.
As Kel Kelly at the Mises Institute explains
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.
China’s economy has swimming in debt with the recent property bubble leading to record inventory levels (Wall Street Journal Blog).
Perhaps the real reason the why such record liquidity injection has been put in place has been about the tenuous state of the banking system.
According to Tim Staermose of the Sovereign Man:
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.
Global asset bubbles are about illusions based on policies of "extend and pretend". And China plays an important role in it.
Or perhaps an added reason could be that the PBoC's recent interventions in the currency markets could mean that China may have joined the currency war which she has been lamenting about. As an old saw goes, "If you can't beat them join them"