Swap in the face

25 June 2018 By Pete Sweeney Follow @petesweeneypro

Beijing will release $108 bln into the banking system to calm markets rattled by trade war talk. Unfortunately, officials want lenders to use most of the cash to swap bad debt for equity in ailing state commodity firms. The private sector needs the money more.

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China's central bank said on June 24 that it would cut the ratio of cash some banks must hold as reserves as a percentage of deposits by 50 basis points, releasing 700 billion yuan ($108 billion) in liquidity. The People's Bank of China (PBOC) encouraged lenders to use the money to conduct debt-for-equity swaps with borrowers.

The State Council, China’s cabinet, said on June 20 that monetary policy tools, including targeted cuts in reserve requirement ratios, would be deployed to increase loans available to small firms and sustain economic growth rates.

Total social financing, a broad measure of credit and liquidity in the economy, declined to 761 billion yuan in May from 1.56 trillion yuan in April, the central bank reported earlier in the month.

PBOC data also showed the weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, rose 22 basis points in the first quarter to 5.96 percent.

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