China’s $708 Billion Race for Cash adds Pressure for Easing

China’s $708 Billion Race for Cash adds Pressure for Easing

Bloomberg

A wall of maturing debt and a surge in seasonal demand for cash will test China’s financial markets this month, putting pressure on the central bank to ensure sufficient liquidity.

Demand for liquidity may total about 4.5 trillion yuan ($708 billion) in January, 18% more than the amount seen last year, according to calculations by Bloomberg based on official data and analysts’ estimates. An increase in the amount of policy loans coming due and demand for cash to be spent during the Lunar New Year, which takes place earlier in 2022, are drivers.

A recent reduction in the reserve-requirement ratio for banks could provide relief but some market watchers predict the central bank could ease again to avoid a liquidity crunch. Cash tightness adds another headache for authorities grappling with the fallout of China Evergrande Group, which has led a wave of defaults with at least six developers failing to pay debts on time in the last quarter.

“There are a number of factors that may pose threats in January to the stable liquidity conditions the central bank has vowed to maintain,” said Yishuang Li, an analyst at Cinda Securities Ltd., citing tax payments and maturity of policy loans. “The bond market is currently vulnerable after an increase of leverage in December, which means financial institutions will be more reliant on PBOC’s liquidity support.”