CSJ: Let China bubble burst

From MNI:

The People’s Bank of China drained CNY100 billion from the system on Tuesday via 28-day bond repurchase agreements.

Some CNY183 billion in outstanding paper is set to mature this week. The bank drained a net CNY41 billion from the market last week.

Money market rates have hovered around relatively low levels but may tick up in the coming weeks as corporate income tax is paid into government accounts.

Interbank rates certainly have loosened, a lot:

Conversely, the PBOC also set its yuan benchmark at the lowest since September 2013 and the trend to weakness against the US dollar continues:

That ensures hot money flows remain under pressure and will crimp credit in the shadow banking market. But that pressure remains focused on trusts. Demand for wealth management products is still booming (WMP) with interest rates falling across the curve. From Investing in Chinese Stocks:

Interest rates continue to decline with ample liquidity, but investors continue to prefer short-term, guaranteed products from the large banks.

Data from 金牛理财. Total WMP market interest rate (yellow line) with percentage of WMPs offering rates above 4.5%:

Interest rate on WMPs offered by large (yellow) and medium & small banks (orange), spread in blue:

Interest rate on guaranteed WMPs (yellow) and non-guaranteed (orange), spread in blue:

Interest rate on WMPs of short maturity (yellow) and medium/long maturity (orange), spread in blue:

• The government should not send a signal that it will “save the property market”
• Should instead allow adjustments to occur by market mechanisms themselves
• Property price cuts, even breaking funding chains for some developers, are part of the process for a bubble to deflate
• Even regional collapses of property markets won’t wear down the banking system and large-scale property price declines won’t have a significant impact on banks.