Photo: flickr: benandbarnet
The People’s Bank of China is showing the all the signs of easing as liquidity conditions across the country tighten.Societe Generale’s Asia Pacific analyst Wei Yao writes in a note out today that tighter liquidity conditions—despite the bank’s attempts at easing—are about to change the game for banks and corporations in China.
Here’s what’s going on:
– China relaxed credit quotas of several banks. This is typically regarded as one of “the first steps taken in monetary easing.” The next step could be cutting reserve ratios, expected in 2012.
– Money growth continued to fall off in October, impacted by revelations about the underground banking sector.
– Household deposits saw their biggest decline ever last month. This is probably due largely to new regulatory rules, but the scale of the decline indicates that cutting interest rates won’t do anything to address tightening conditions.
Yao concludes that these developments suggest massive changes ahead:
2011 probably marks the beginning of a new era for Chinese banks and corporate. As households discover more investment vehicles to boost the return on their hard-earned savings, the cost of capital is set to rise.