Latest news with #PanGongsheng
Forbes
11 hours ago
- Business
- Forbes
Why The ‘Bond Vigilantes' Are Coming For China, Too
getty The People's Bank of China is having a busier-than-usual summer, and not just because of Donald Trump's tariffs. On Friday, the team overseen by PBOC Governor Pan Gongsheng pumped at least $84 billion of short-term liquidity into mainland reverse repurchase agreements. That's code for there's deepening trouble in bond circles. A day earlier, a sale of 30-year government bonds drew the highest yield since March, a telltale sign that investors worry about losses. The good news is that the cash the PBOC is pumping into the market has tamed things for now. But the upward pressure on rates is not likely to go away — not with the U.S.-China trade standoff hovering over global markets at every turn. The two biggest economies just punted trade deal talks down the road — again. Good news, it's not. Sure, the all-out, open tariff hostility is being tempered for now. But it means at least another 90 days of global markets not knowing how to hedge what's ahead. Or how to play any tariff agreement that Trump's White House announces between now and then matters, or merely tying up loose ends ahead of the bilateral deal on which 2025's economic outlook likely turns. Chinese yields are also under upward pressure thanks to economic optimism. Asia's biggest economy is displaying impressive resilience in the face of U.S. tariffs. Though 30% is a long way from 145%, U.S. import taxes at this level are no joke. Yet China expanded 5.2% year-on-year in the second quarter. There are signs, too, that Beijing's efforts to reduce industrial oversupply are boosting economic confidence a bit. And reducing the risk that deflation might deepen in the months ahead. It's not that simple, of course. The so-called 'bond vigilantes' also worry that Beijing's efforts to support the economy amid tariff pain will fuel a huge increase in long-term government borrowing. This has debt traders buzzing about an increase in the budget deficit in late 2025. Between January and June, China's broad fiscal gap widened 45% from a year earlier. It hit 5.25 trillion yuan ($732 billion). The issue is less the absolute number than the trajectory. And the ways in which economists schooled in Japan's 1990s nightmare can follow the dots as Beijing battles deflation the way Tokyo did for decades. Again, for an $18 trillion economy, a fiscal deficit a bit smaller than Taiwan's annual gross domestic product is manageable. But along with following the dots, China watchers can connect them, too. Take China's local governments, which are sitting on trillions of dollars in debt. Lots of it is the off-balance-sheet kind by way of local government financing vehicles (LGFVs). Transparency not being China's strong suit, it's not unreasonable to wonder if the nation's debt outlook is worse than known. A major contributor to the problem is China's setting of GDP targets. This annual ritual incentivizes local leaders across China's 34 province-level administrative divisions to generate above-trend growth. This is the tried-and-true way local politicians rise to national prominence in Communist Party circles. Yet it explains why China has way too many six-lane highways, low-vacancy skyscrapers, sprawling international airports struggling to win routes from airlines, white-elephant stadiums and, yes, giant apartment complexes that developers can't complete. Never mind that Beijing's insistence on setting an annual GDP ultimatum — this year's is 'around 5%' — warps financial incentives, rewards low-quality growth and weds Beijing to unproductive development policies that treat the symptoms of the nation's troubles, not the underlying causes. China's problem is that its 1.4 billion people lack confidence in the future to save less and spend more. All the borrowing that Beijing is doing today will do little, if anything, to repair China's cratering property sector. Only bold, creative policy moves can get these bad assets off developers' balance sheets. Nor will today's debt issuance clean up municipal finances, reduce high youth unemployment, increase productivity and transparency or address lopsided demographics as the ranks of the elderly increase and the birthrate stagnates. The bond vigilantes bidding up Chinese government yields aren't always right. But in the second half of 2025, it's hard to argue they don't make a good point.
Yahoo
21-07-2025
- Business
- Yahoo
Navigating China's Economic Challenges: A Q&A with Scope Ratings' Dennis Shen
When People's Bank of China (PBOC) governor Pan Gongsheng outlined plans for a more accommodative monetary policy last September, he sparked a market rally. His decisive stance earned him the nickname of 'China's Greenspan', a reference to former US Federal Reserve chairman Alan Greenspan, who famously slashed interest rates to stimulate economic growth. Fast forward several months and the PBOC's capacity to influence market expectations appears to be diminishing as the central bank faces the complex challenge of supporting economic activities through lower borrowing costs while stabilising the yuan to preserve market confidence. These at-times conflicting priorities are testing the central bank's capacity to maintain the same degree of effectiveness. Would you agree with those who have nick named the PBOC governor China's Greenspan? Comparisons to Alan Greenspan may be premature. Greenspan presided over the Great Moderation, overseeing comparatively-robust and stable growth and achieving moderate levels of inflation. By contrast, Pan took office in 2023 amid a structural economic slowdown and the longest run of deflationary forces since the 1960s (Figure 1). Figure 1. China faces persistent deflationary forces China consumer price inflation rate, % year on year Deflation risk derives from the structural transitions in China's economic growth model so are not of the PBOC governor's design. But as the governor brings to China some of the innovations of advanced economy central banks to deal with deflation, including large-scale asset purchases, he has to deliver results that stabilise China's economy before any comparison with Greenspan can be justified. The governor has delivered some policy easing to support the economy, countering low inflation and pursuing stabilisation of the embattled property sector. But very high and rising levels of public sector and corporate debt have created a real dilemma for the central bank. It cannot set about overly aggressive monetary easing without material concerns about creating asset-price bubbles and excess debt accumulation. If the governor can solve this apparent policy paradox and help pave the economy's path to lower but better-quality economic growth and stable debt, he might one day have a seat on the pantheon of central bankers. What Are Your Thoughts About China's Bond Rally? The PBOC is facing a relatively new challenge: increasing evidence of Japanification in the Chinese economy, i.e. very low inflation. Bearing in mind the global inflationary forces in play since 2021, China's grappling with unusually low inflation highlights the severity of domestic deflationary factors. This context has seen Chinese 10-year bond yields fall rapidly to near-record lows. The PBOC's response is complicated by the fact that deflation has not been persistent for more than a half century and also because the tools China is introducing are novel and untested – in China. Easing monetary policy while reining in market tendencies to price in the most severe economic scenarios has seen a comparatively inconsistent policy mix that has seen an intermittent bond-purchasing programme; on-again, off-again rate reductions; and occasional draconian policies such as the disciplining of certain regional banks for purchasing too many government bonds. How are the PBOC's actions affecting foreign investor sentiment? On one hand, ultra-low Chinese yields, a flattening yield curve and ongoing depreciation pressures on the renminbi are understandably alarming. Authorities are wary, as the one ending to the decades of the Chinese economic miracle they are keen to sidestep is any comparison with Japan's experience of recent decades: low nominal growth, low or negative yields and a weak currency. The PBOC wants its monetary policies to be correctly transmitted and to avoid monetary easing stretching much beyond what it has been announcing. On the other hand, even if monetary easing has run faster than planned, low yields may be welcome. Given the record levels of public debt and outstanding budgetary challenges, low rates could partially alleviate the challenging fiscal trajectory and support economic restructuring, thereby facilitating the sought-after soft landing. Plus, a weaker renminbi helps combat low inflation, so the low yields achieved via monetary easing, accelerating credit growth and ultimately depreciating the currency might prove strategically beneficial. Nevertheless, the PBOC's erratic easing announcements followed by tightening complicate policy signalling. A clearer communication strategy is needed as China transitions from opaque policymaking to greater transparency and market engagement. Foreign investors have been comparatively unphased by the PBOC interventions to date as real rates have stayed attractive and bond prices remain high. Global investors are accustomed to interventionist policies like QE so are unlikely to exit unless they are faced with direct capital restrictions. Balancing the US dollar-yuan exchange rate using monetary tools looks challenging. What is your observation of and outlook on the PBOC's moves? The PBOC is navigating a structurally slowing economy facing deflation threats while endeavouring to avoid asset bubbles and rising debt risks, even though growth came in better than economists had anticipated at 5.2% year-on-year in the last quarter. China is seeking to liberalise its capital markets but the PBOC is not accustomed to markets doing so much of the easing for it so it is rightly seeking to prevent monetary conditions from easing too quickly or by too much. In this context, the PBOC is targeting a guided and gradual loosening of monetary conditions through interest-rate cuts, balance-sheet policies and the currency. Strengthening communication following the example of developed market central banks could help temper market volatility and strengthen credibility. For a look at all of today's economic events, check out our economic calendar. Dennis Shen is the Chair of the Macro Economic Council and Lead Global Economist of Scope Group. The rating agency's Macroeconomic Council brings together the company's credit opinions from multiple issuer classes: sovereign and public sector, financial institutions, corporates, structured finance and project finance. This article was originally posted on FX Empire More From FXEMPIRE: Navigating China's Economic Challenges: A Q&A with Scope Ratings' Dennis Shen Identify Superstar Stocks Like DoorDash Before the Crowd Why Nextracker Could Be the Next Big Money Outlier Buy Like Big Money: Bentley Systems Lifting Off Jump On Potential Highflyers Like Sportradar Early Strength for the Dollar After Higher Inflation
Business Insider
18-07-2025
- Business
- Business Insider
Africa emerges strategic 'testing ground' for China's currency ambitions
China's push to globalize its currency, the yuan, is gaining traction in Africa, with the continent emerging as a strategic testing ground for Beijing's broader de-dollarization ambitions. China is advancing the global use of its currency, the yuan, aiming for de-dollarization. The adoption of the yuan aligns with Africa's shifts towards non-Western financial systems. Africa serves as a strategic region for testing China's currency internationalization efforts. In a recent milestone, the central banks of China and Egypt signed a series of agreements to increase yuan use in bilateral trade and investment. The deals, signed during Chinese Premier Li Qiang's visit to Cairo last week, were praised by People's Bank of China governor Pan Gongsheng as ' a key step in advancing economic ties ' between the two countries. Key provisions include electronic payment cooperation such as expanding China's UnionPay system in Egypt, and enabling cross-border yuan-denominated transactions for banks operating in the China-Egypt TEDA Suez Economic and Trade Cooperation Zone. These financial operations will be processed through the Cross-border Interbank Payment System (CIPS), China's alternative to the SWIFT network, thereby reducing reliance on Western financial systems. With this development, Egypt now joins a growing list of African nations, including South Africa, Nigeria, and Angola, that are actively incorporating the yuan into their trade and financial dealings with China. China's growing currency ambition in Africa The expansion of the yuan across Africa is part of China's broader strategy to challenge the dominance of the U.S. dollar. This move aligns with the continent's gradual shift away from Western financial systems toward a China-Russia-led coalition under BRICS, reflecting a strategic effort to diversify trade and currency frameworks. China-Africa trade reached $282 billion in 2023, cementing China's 15-year run as the continent's top trading partner. The surge has boosted renminbi use in cross-border deals and reserve holdings. Beyond Egypt, where the central banks recently signed agreements to deepen yuan usage in trade and investment, China has steadily advanced its currency diplomacy across Africa. As early as 2015, South Africa signed a 30 billion yuan swap deal to improve trade liquidity. The South African Reserve Bank (SARB) explained that the three-year agreement was designed to 'facilitate trade and investment' and serve as a 'buffer for short-term balance of payment pressures.' Earlier this year, Nigeria and China renewed their bilateral currency swap deal valued at 15 billion yuan (₦3.19 trillion), three years after the initial agreement expired. The People's Bank of China said the renewed three-year pact aims to ' promote bilateral trade and investment facilitation.' In Angola, a key oil supplier to China, the yuan is increasingly being used in energy and infrastructure transactions, with the Cross-Border Interbank Payment System (CIPS), China's alternative to SWIFT, being integrated into the financial system. Lauren Johnston, a senior research fellow at the AustChina Institute and China-Africa expert, told the South China Morning Post that Africa offers a strategic testbed for Beijing's currency goals. ' Africa is a continent where trade with China is important, but it is also one where many countries struggle to access sufficient foreign currencies such as the euro or US dollar, ' she noted. Johnston added, ''
Yahoo
18-07-2025
- Business
- Yahoo
PBOC governor, Bank of America senior executive discuss economy, financial markets
BEIJING (Reuters) -China's central bank governor Pan Gongsheng met Bank of America's president of international business Bernard Mensah earlier this week to discuss economic and financial matters, the People's Bank of China said in a statement on Friday. The Tuesday meeting included an exchange of views on the global economic and financial situation, China's macroeconomic policies, and its financial markets, the PBOC said.
Reuters
18-07-2025
- Business
- Reuters
PBOC governor, Bank of America senior executive discuss economy, financial markets
BEIJING, July 18 (Reuters) - China's central bank governor Pan Gongsheng met Bank of America's president of international business Bernard Mensah earlier this week to discuss economic and financial matters, the People's Bank of China said in a statement on Friday. The Tuesday meeting included an exchange of views on the global economic and financial situation, China's macroeconomic policies, and its financial markets, the PBOC said.
