New reserve hikes heighten China’s financial repression

The People’s Bank of China (PBoC) raised the reserve requirement (RRR) last effectively taking 22.8% of China’s bank deposits out of the market. Economists at Nomura believe this form of inflation control can help but repress banking activity.

  • 18 Jan 2011
Email a colleague
Request a PDF

Last week’s People’s Bank of China (PBoC) reserve requirement (RRR) hikes are having a restrictive effect on banking activity, economists at Nomura have said.

The central bank raised the RRRs of all desposit-taking banks by 50 basis points (bp), and will withdraw around Rmb360 billion (US$55.5 billion) of liquidity from the banking system when it takes effect on January 20.

“A consequence of sterilising heavy FX intervention is that financial repression in China is intensifying,” said Chi Sun, China economist at Nomura in a research note published today (January 18).

Sun describes financial repression as the notion that a set of government regulations, laws, and other non-market restrictions prevent the financial intermediaries of an economy from functioning at their full capacity.

“The policies that cause financial repression includes interest rate ceilings, liquidity ratio requirements, high bank reserve requirements, capital controls, etc,” Sun said.

The measures are a bid to curb excessive liquidity in the market and also bank lending. Jian Chan, economist at Barclays Capital said there three good reasons for why the RRR hikes have come about when they did.

Firstly, he said that Chinese banks traditionally have a strong lending impulse at the beginning of each year, for reasons including profits and securing better-quality loans given the lending quota system.

“The situation tends to be exacerbated in the first few weeks of the year when there are sometimes large amounts of lending that have passed banks' examination around the previous year-end but could not be extended due to quota restrictions—as in 2010,” Chang said.

Secondly, the desire to lend would have been even stronger for banks and local governments this year because it’s the first year of China’s 12th Five-Year Plan and lucrative infrastructure projects are expected to kick off.

Thirdly, there are large number of PBoC bills and notes set to mature this month and will create significant liquidity, roughly Rmb468 billion. Chang believes these figures require RRR hikes to withdraw that liquidity.

“The lack of demand for PBoC bills, due to their low yield despite rate hike expectations, has made RRR as a more important and preferred monetary policy tool (compared with open market operations) to withdraw liquidity,” she said.

  • 18 Jan 2011

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 31,686.78 147 9.89%
2 HSBC 28,689.30 158 8.96%
3 JPMorgan 28,398.18 123 8.87%
4 Deutsche Bank 18,175.84 65 5.67%
5 Standard Chartered Bank 15,878.92 95 4.96%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 16 May 2017
1 Citi 7,891.26 23 14.39%
2 JPMorgan 6,469.14 26 11.80%
3 Morgan Stanley 4,879.44 17 8.90%
4 HSBC 4,803.80 12 8.76%
5 Bank of America Merrill Lynch 4,270.90 19 7.79%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 23 May 2017
1 JPMorgan 12,475.95 47 12.71%
2 Citi 12,387.42 44 12.62%
3 HSBC 8,280.73 41 8.44%
4 Deutsche Bank 6,905.70 15 7.04%
5 Standard Chartered Bank 5,686.63 26 5.79%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
3 Morgan Stanley 141.22 46 7.64%
4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 23 May 2017
1 Bank of America Merrill Lynch 929.36 4 8.03%
2 ING 872.17 7 7.53%
3 SG Corporate & Investment Banking 839.92 7 7.25%
4 Credit Suisse 832.77 5 7.19%
5 UniCredit 793.78 7 6.85%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 May 2017
1 AXIS Bank 3,917.94 61 15.95%
2 Trust Investment Advisors 3,216.02 74 13.09%
3 ICICI Bank 2,356.13 61 9.59%
4 Standard Chartered Bank 2,261.01 21 9.21%
5 HDFC Bank 1,552.43 41 6.32%