In response to the recent "money shortage" in the interbank market, the People's Bank of China (PBOC) stated on the 24th that the overall liquidity in China’s banking system remains at a reasonable level. The central bank urged financial institutions to enhance their liquidity management and ensure stability in the monetary environment.
The "money shortage" that persisted for nearly a month starting late May drew widespread attention. Analysts suggest that this situation highlights the inefficiency in China’s banking system and reflects the government’s intention to direct more funds toward the real economy.
**The Central Bank Stands Firm: The Final Push Behind the "Money Shortage"**
June 20 may become a memorable day for many bankers. On that day, the overnight repo rate spiked to 30%, while the Shanghai Interbank Offered Rate (Shibor) for overnight lending surged by 578 basis points to 13.44%, reaching a yearly high.
Peng Wensheng, chief economist at CICC, noted that in history, there were only four instances where the overnight repo rate exceeded 6%, but none matched the scale or duration of this event.
Economists point out that unlike previous liquidity constraints, this round of "money shortage" lacks a single clear cause. Instead, it results from multiple overlapping factors, with the PBOC's "non-intervention" serving as the final trigger.
Lian Ping, chief economist at Bank of Communications, explained that external factors like the Fed's policy shifts and internal issues such as poor liquidity management contributed to the crisis. Regulatory tightening, quarterly performance evaluations, and seasonal pressures further compounded the problem.
Many financial institutions had anticipated some form of easing, including reverse repos or reserve requirement cuts. However, the PBOC’s unexpected stance caught them off guard, intensifying the liquidity crunch.
**Idle Capital: The Financial Alienation Behind the "Money Shortage"**
The PBOC’s firm stance ultimately aimed to address the widespread "funding of funds" within the interbank market.
What many find confusing is that the "money shortage" occurred in a country with one of the largest money supplies globally. According to the PBOC, total social financing in the first five months of the year reached 9.11 trillion yuan—3.12 trillion more than the same period last year. Broad money supply (M2) stood at 104 trillion yuan.
Guo Tianyong, professor of finance at the Central University of Finance and Economics, argues that China isn't short of money in total terms. The issue lies in the structural misallocation of funds.
Zhao Qingming, a financial expert, believes the core issue is that more capital is being held idle, which regulators are now trying to correct. While credit and social financing have grown significantly, the real economy has not seen corresponding growth, indicating that much of the money is circulating within the financial sector rather than supporting industry.
Lian Ping notes that some large companies use bank loans to invest in trust products, which then flow into local government platforms and real estate—driving up capital costs and making it harder for manufacturing to access funding.
This phenomenon reveals a deeper issue: the "alienation" of finance. Funds that should support real businesses end up trapped in financial transactions, turning finance into a self-reinforcing game of "making money from money."
**Redirecting to the Real Economy: Policy Intentions Behind the "Money Shortage"**
Experts say the PBOC's non-intervention was not passive but a strategic move. By allowing the "money shortage" to unfold, the central bank aims to prevent excessive liquidity from inflating asset bubbles and instead redirect capital toward the real economy.
Peng Wensheng of CICC suggests that this active regulation helps maintain financial stability and reduce the over-concentration of capital in real estate and local government financing platforms.
With global economic conditions improving but still complex, the PBOC is resisting the urge to inject more liquidity. This signals a shift away from monetary stimulus and toward a more focused effort to channel funds into the real economy.
Ba Shusong, deputy director of the State Council's Development Research Center, emphasizes that in the current phase of structural adjustment, excessive liquidity could disrupt de-leveraging efforts. A tight monetary environment forces market participants to make necessary adjustments.
Indeed, optimizing financial resource allocation and strengthening support for the real economy is a key goal of the current government. Premier Li Keqiang has repeatedly called for "activating currency and credit stocks," highlighting the need to move away from expansionary policies and focus on real economic growth.
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