Armstrong Economics Blog/Central Banks Re-Posted Nov 10, 2022 by Martin Armstrong
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It is not out of the question that China is holding onto its Zero COVID policy tactics to prevent the people from realizing banks are in the midst of a liquidity crisis. I reported earlier in the year that China had manipulated QR codes to prevent citizens from entering banks. Over $6 billion (39 billion yuan) was frozen from accounts in June, and thousands of people were unable to access their bank accounts. A few banks in Henan reported bank runs, and residents were planning a protest after finding that their funds were frozen. Some depositors attempting to access the bank were taken by force into quarantine camps. Others were not permitted via QR code to even gain access to public transportation, let alone enter the bank.
The Chinese government now states that Henan Xincaifu Group Investment Holding illegally colluded with bank employees to attract funding unlawfully. Of course, this cannot be the only culprit for the banks lacking liquidity. The situation in Henan is a small glimpse of how bad the situation could become.
The yuan is generally less attractive right now. Ongoing COVID lockdowns pushing businesses to flee. Geopolitical conflicts are causing investors to fear that China may no longer be a safe bet. China’s plans to loosen monetary policy directly conflicts with the Federal Reserve’s hawkish stance. The People’s Bank of China governor Yi Gang stated that although less impacted by inflation, China’s still feeling the global shockwaves. Delicate sectors such as real estate are extremely volatile right now
Printing more money is not an option. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, would like tougher regulations and cited inflation as the global economy’s main challenge. “The central banks of major developed economies have aggressively tightened monetary policy, which is likely to trigger a widespread economic recession in Europe and the United States,” Guo stated.
Yi took things a step further by suggesting that straying from the current policy could go so far as to trigger hyperinflation in China as it must remain competitive. “If the government is allowed to overdraft through the central bank and relies on printing bills to meet the needs of fiscal spending, it will eventually lead to hyperinflation, unsustainable finances and a debt crisis,” Yi said.
China is in a tough spot right now. Our computers still indicate that China will surpass the US to become the next financial capital of the world after 2032. Its journey to the top will be interesting to watch unfold.