The Chinese economy is in doldrums, and the Central Bank of China has now stamped concrete authority over the same assertion. The Chinese Communist Party, led by Xi Jinping, has been claiming that after one initial bad quarter, the country’s economy has miraculously rebounded into a major positive region of growth. However, the Central Bank of China and its Director have now inadvertently ended up revealing the true picture prevalent within the middle kingdom, and needless to say, the situation is grim. The Central Bank of China seems to be flooded with requests from corporates, local governments and even Beijing-based institutions alike to bail them out or forward major cash doll-outs.
Of course, when it comes to the desperate need to pay bills, whether by individuals, corporates or governments, the fiscal health of an economy becomes a non-issue; the same is happening in China. Amid unprecedented economic devastation and an over-stating of growth, financial institutions of the middle kingdom find themselves in a fix. In such desperate times, everyone is turning to China’s Central Bank to bail them out.
The Central Bank Chief Yi Gang, however, has made it clear that the institution will not bankroll government spending or bail out troubled companies backed by local governments. Yi said that a “firewall” must be set up between the treasury and the central bank, rejecting outrightly the notion that China could “monetise” fiscal deficits by printing money to directly bankroll fiscal spending. Gang also added that the Central Bank’s balance sheet “must not assume corporate credit risks” as this would undermine the credibility of the Chinese currency.
The SCMP quoted Yi Gang as saying, “Some local governments and financial institutions still attempt to force the central government or the central bank to bail them out, citing excuses of social stability. The moral hazards still stand out in financial regulation and risk disposal.” China is essentially an authoritarian country, and the independence of financial institutions in such a scenario remains a far-fetched dream for sane individuals within the country at best. Working under a CCP regime, the Central Bank of China has to bail out the government from time to time, notwithstanding the adverse economic impact of the same.
Of late, though, Yi Gang is trying to get some independence and autonomy for the institution he heads. As such, local governments, corporates and even some central departments are not being given cash handouts as and when they demand them. This, keeping in mind the massive inflation in the prevailing economic atmosphere of China, will lead to an unmitigated crisis for the country. Untimed, haphazard and unaccounted cash handouts cause a circulation surplus in any country, leading to tremendous inflation. The Central Bank of China is, therefore, doing its part to ensure that China’s economy doesn’t irreversibly go down the drain.
Read more: China’s ‘property-hungry’ millennials will cause the next financial crisis in the country
TFI has already reported that the middle kingdom is staring at an impending financial crisis right in the face. Chinese millennials are crazily buying properties, mostly at debts, thinking that they are investing in them for a better future. However, such investments can go quite the opposite way in no time, setting the paper dragon on fire with a massive financial crisis, induced by fragile systems which are overloaded by debts which people are unable to pay due to negligible property appreciation, or perhaps even depreciation. An overburdening of the real-estate sector with non-payable bills, concentrated within a certain age-group no less can bring China’s financial institutions crashing down.
China painting a rosy picture of its economy and financial systems is beginning to result in an unmitigated catastrophe for the CCP. While its propaganda can relieve the pain in the short run, an economic system built on a foundation of lies, deceit and coverup cannot be stopped from unwinding and ultimately collapsing, as is beginning to happen now.