Fall in FDI impacts China’s banks
(21 August 2012 – China) The latest signs of an economic slowdown in China include a steady fall in foreign direct investments (FDI), making market rates increase as banks become less able to handle short-term liquidity crunches.
Money market cash flows tightened at the beginning of last week as payments for a large number of bond issues came due, traders said. Banks also needed extra funds because they are required to adjust their reserves on the 5th, 15th and 25th in line with the rise or fall in their deposits to meet the required reserve ratio ordered by the People’s Bank of China (PBoC).
Some traders told Asian Banking and Finance that even large banks are needing to borrow, given short-term liquidity crunches, a clear sign that the supply of long-term base money in the system is really shaky.
Purchase of foreign exchange is the primary way for China to expand its monetary base while PBoC favours using reverse repos to achieve the same effect.
The Ministry of Commerce said FDI inflows dropped 3.6 percent from January to July from a year earlier, extending the longest series of declines since the last global financial crisis.
Some traders told Asian Banking and Finance that even large banks are needing to borrow, given short-term liquidity crunches, a clear sign that the supply of long-term base money in the system is really shaky.
Purchase of foreign exchange is the primary way for China to expand its monetary base while PBoC favours using reverse repos to achieve the same effect.
The Ministry of Commerce said FDI inflows dropped 3.6 percent from January to July from a year earlier, extending the longest series of declines since the last global financial crisis.
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