China is pumping a lot of cash into its economy to calm investors
- China injected nearly $130 billion into its market in the last two weeks to quell a bond rout
- The People’s Bank of China is seeking to balance market sentiment with its need to crackdown on debt
- Rapidly expanding liquidity could make it more challenging for Beijing to counteract capital flight — its relatively static foreign exchange reserves are growing less potent when compared to the amount of cash that could be leaving the country
Last week, the People’s Bank of China injected cash totaling 810 billion Chinese yuan ($122.4 billion) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said.
“Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment,” said Ken Cheung, a foreign exchange strategist at Mizuho Bank who focuses on Chinese currencies and monetary policies.
Nomura analysts said last week in a note that the bond rout was due to fears of regulatory tightening from Beijing. Bond yields, which move inversely to prices, briefly hit 4 percent in China for the first time in three years.