Chinese Liquidity Demand Set for 18% YoY Spike in January


Liquidity in China’s financial system is set to come under heightened pressure this month due to a wave of maturing debt, as well as customary seasonal increases in cash demand for tax payments and the Chinese holiday season.

A report from Bloomberg sees liquidity demand totalling 4.5 trillion yuan (approx. USD$708 billion) in January, for an increase of 18% compared to the same period last year.

According to Bloomberg this increase is due to a rise in the volume of policy loans scheduled to mature, as well as a rise in cash demand for spending during Chinese New Year, which is scheduled to arrive earlier than usual in 2022.

January will see the maturation of around 1.2 trillion yuan in negotiable certificates of deposit, as well as 500 billion yuan in medium-term policy loans and 700 billion yuan in reverse repurchase agreements.

The financial system may see a further 700 billion yuan in cash demand in relation to spending for Chinese New Year, which arrives in the first week of February, while another 1 trillion yuan is needed to meet tax obligations.

Chinese banks could also engage in net purchases of 300 billion yuan in local and central government bonds set for issue in January, while Chinese property companies need at least $189 billion to cover debt in the form of maturing bonds, trust products, as well as wages for millions of staff.

Analysts expect the People’s Bank of China (PBOC) to provide further easing measures in order to avert a liquidity crunch, while still proceeding with caution in order to prevent undue asset inflation.

Measures adopted by PBOC could include a cut to the policy rate, or the use of short and medium-term tools to calibrate the cash supply.