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

China has been pumping a lot of cash into its system to lift market sentiment, as the world’s second-largest economy walks a thin line between curbing debt and keeping everything running smoothly.

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.

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“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 BeijingBond yields, which move inversely to prices, briefly hit 4 percent in China for the first time in three years.



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