Cross-posted from Investing in Chinese Stocks.
I bet the PBOC felt the same way as Helga, but look at them now.
Bloomberg: PBOC’s Failure to Lower Long Rates Leads to Own Operation Twist
China’s failure to bring down long-term borrowing costs is forcing policy makers to use special tools.
The People’s Bank of China, which normally focuses on influencing seven-day borrowing costs, is now seen to be shifting its attention to lending facilities ranging from three months to five years. The yield on 10-year sovereign bonds has risen 29 basis points from April 30, even as the one-year yield plunged 70 basis points, leading to the steepest yield curve since 2010.
The PBOC is undertaking its own version of the Federal Reserve’s 2011 Operation Twist to correct financial distortions and achieve its 7 percent growth target. The flood of short-term money has fueled a 141 percent rally in Shanghai stocks in the past year. Meanwhile, higher costs for mortgages and long-term loans are suppressing investment in the real economy.
“The central bank is determined to create a low-interest-rate environment and stimulate credit expansion,” said Chen Kang, a Shanghai-based analyst at SWS Research Co., a unit of China’s second-biggest brokerage. “The recovery of the economy has been slow, so there’s an urgency to deploy more measures.”
This sounds so familiar, it feels like déjà vu. A housing bubble, followed by a massive stock market bubble, followed by capital flowing away from the real economy, quantitative easing, and then long-term bond buying when the market doesn’t behave as the central bank wants. Except in the U.S., this took place from 2006 to 2012. In China, it has all happened in one year since 2014.
