Thursday, July 9, 2009

Aggressive Chinese Money Printing

Yesterday on their website, the People's Bank of China announced new Chinese bank lending for June was 1.53 trillion yuan ($224 billion), double the lending in May. The total already for the year is an astounding 7.4 trillion yuan when the target for the entire year was 5 trillion.

This means there are likely large bubbles forming in the Chinese stock market and real estate market, with the possibility for very strong price inflation down the road.

For an economy still coming out of the totalitarian grip of communism, this is not a good sign


  1. Hi Robert,

    Why do you characterize it is money printing when China as a country has very high savings rate and huge foreign exchange reserves?

  2. @Anonymous,

    Good question.

    Because China already has a huge savings rate, it is unlikely that the increase in loans (certainly a doubling) is coming from further savings. It is more likely central bank stimulus. We'll know for sure when the central bank releases the actual numbers.

    As for the huge foreign exchange, that is also part of the problem since China's central bank is buying these reserves by printing new money to artificailly keep the value of the yuan weak.

  3. This could be a thought-out Chinese strategy. Print money to cushion the blow from the downturn (like the rest of the world). When inflation starts showing at the horizon - they pull out their aces from their sleeve, namely

    1) Letting the yuan float
    2) Killing the dollar (by drowning the market) to make demand for all other currencies soar

    This may be what the US gets for devaluing it's currency. If the Chinese have figured out that their Treasury holdings are worthless (since they cannot sell without them losing value), then at least they can put them to use by shooting down the dollar for the benefit of their own currency.

    Historically, the Chinese have been acting very much long-term. After all, you don't keep an empire together for many thousand years without thinking before you act.

    If we want to be even more conspiratory - what was that BRIC meeting about? How many of your trading partners do you warn in advance when doing such a move? How long does it take to set up trade agreements in new currencies, spanning multiple economies?

    // Hans

  4. Thanks Robert for the clarification, it would be nice if you can blog about their money supply growth when they publish that data.