Greetings, my dear readers, fascinated by financial intricacies! Today we will peek into China's "money kitchen," where the People's Bank of China (PBoC) is actively working on liquidity, and billions of yuan are flowing into the system to keep everything running like clockwork.
Our hero is the People's Bank of China, which on May 23 did not hold back and injected 500 billion yuan (about 70 billion US dollars) into financial institutions through a medium-term lending facility (MLF). It’s as if you were constantly pouring fuel into your car’s tank to keep the engine running smoothly. The main goal is to ensure sufficient liquidity in the banking system and, of course, to stimulate credit growth, as the economic recovery in the Middle Kingdom is ongoing but still needs gentle support. The PBoC uses a clever "multiple price bidding" system, which means there is no fixed interest rate, giving the Central Bank more flexibility. This is the third consecutive month that the PBoC has been actively "nourishing" the system, indicating its constant attention to the money supply.
What happened in the markets after such a generous injection? Initially, the Shanghai and Shenzhen indices showed a slight increase. On Friday morning, the Shanghai Composite rose by 0.1% to 3384 points, while the Shenzhen Component increased by 0.5% to 10266 points. Some sectors, particularly high-tech companies and electric vehicle manufacturers, even saw significant gains (for example, BYD Company added 2.7%). However, this initial optimism was rather fleeting. By the end of the day, the Shanghai Composite fell by 0.94%, closing at 3348 points, while the Shenzhen Component decreased by 0.85% to 10132 points, erasing the morning gains. Apparently, investors decided that one injection of liquidity is not enough for long-term growth.
However, the offshore yuan has shown itself to be strong, strengthening to 7.19 per dollar. Here, of course, not only the billions from the PBoC played a role, but also the broader picture: news that the US and China, despite all disagreements, agreed to "keep communication channels open" was perceived as a positive signal. Plus, the weakening of the US dollar due to internal fiscal issues also pushed the yuan up.
In general, while the PBoC continues its "money injections," it signals that the Chinese economy still needs support for a confident recovery. And even if the markets don't always dance with joy, the stability of liquidity is the foundation upon which everything is built.