China's banks are closing, and President Xi Jinping is determined to extract the remaining funds

Overall, although the CCP and Xi Jinping are hellbent on squeezing out the money that Chinese individuals have saved in order to conceal his bad policy decisions, all of this is destined to be a little band-aid on a shattered limb in the end.

Snatching money from residents' pockets, which they had deposited in banks for safekeeping, is never a wise idea. While the proposition may appear attractive to a failing government, it has ramifications for the country's overall financial health, since citizens will no longer be able to place their faith in banks if the social compact is broken. China’s central bank announced on Monday that it will reduce the amount of cash that banks must retain as reserves, the country’s second such step this year, releasing 1.2 trillion yuan ($188.24 billion) in long-term liquidity to support the country’s weakening economy. The People's Bank of China (PBOC) stated on its website that the reserve requirement ratio (RRR) for banks will be cut by 50 basis points beginning December 15th (bps).

Mounting distress:

Sunshine 100 China Holdings, a Beijing-based mid-sized developer, declared a $170 million bond default on Monday. S&P Global Ratings put Guangzhou-based builder China Aoyuan Group in "selective default" late in the day after announcing last week that it had failed to pay $651.2 million in borrowings.

Meanwhile, China Evergrande Group investors were counting down the hours until a 30-day grace period expired for the country's most indebted developer to make good on $82.5 million in bond interest payments missed last month. Investors were also waiting to hear what Kaisa Group Holdings will do with a $400 million bond that was due to maturity on Tuesday, after the business revealed last week that bondholders had rejected its request to extend the loan for another 18 months.

The PBOC declared that, in order to enhance liquidity in the actual economy, it will reduce the share of deposits that banks must retain as reserves by 0.5 percentage points — effectively robbing the public savings in banks without their knowledge or respect.

The mechanics behind the decision:

The reduction will not affect financial institutions with a current required rate of return (RRR) of 5%, according to the report, which also stated that the weighted average RRR for financial institutions will be 8.4% following the new drop. After taking into account the preferential strategy of targeted cuts for inclusive financing, the RRR for large banks is currently at 10.5%.

"The RRR cut would assist relieve downward pressure on the economy and flatten the economic development curve," Wen Bin, a senior economist at Minsheng Bank, said. "Economic work will confront significant constraints and obstacles next year, despite the fact that there is minimal pressure to meet this year's economic growth objective." Some of the money would be used to repay maturing medium-term lending facility loans, according to the PBOC, reaffirming a goal of avoiding "flood-like" stimulus. While the CCP would like everyone to believe that the country is doing well economically, the truth is that Beijing is experiencing unprecedented cash shortages.

According to the sources, China will focus on stabilizing macroeconomic circumstances before the party's key 20th congress meeting later next year, ensuring that the economy grows at a reasonable pace and society remains orderly. The words "houses are for living in, not for investing," which was used by the Politburo in July and by Vice-Premier Liu He in an article published last month, was excluded from the Politburo statement. The emphasis of the July statement was on the need to keep housing prices in check, which was entirely absent from Monday's address.

China’s economic disaster:

To avert a worsening of the real estate crisis, the People's Bank of China intends to loosen lending standards in order to inject money into the markets. The Federal Reserve, on the other hand, wants to raise interest rates to prevent more lending, which would aid the government in dealing with the galloping inflation. Since a result, China is faced with a difficult decision, as both raising and reducing interest rates would have disastrous consequences for the Chinese economy.

Chinese businesses are seeing their earnings plummet and manufacturing expenses rise at a breakneck speed as a result of excessive inflation. The energy crisis, along with the food and economic crises, has made production in China a dangerous profession, causing inflation to skyrocket. And if the People's Bank of China continues to follow its loose monetary policy in order to aid China's ailing real estate sector, the Yuan's value would decline.

The situation is so bad that the CCP is using the Asian Infrastructure Investment Bank (AIIB) to fund its Henan Flood Emergency Rehabilitation and Recovery Project in China. Imagine the second largest economy in the world, knocking on the doors of AIIB to secure a loan of USD 1 billion as its banks are out of cash.

As a result, Beijing has been compelled to come up with statistics and arguments in order to put out the fire. However, according to PBOC data, total personal mortgages increased to 348.1 billion yuan ($54.63 billion) in October, up 101.3 billion yuan from September. While we cannot verify the genuine numbers, the fact that such data is normally provided quarterly rather than monthly reveals the issues that Xi Jinping's country is facing. The special statement, according to Gavekal analysts He Wei and Zhang Xiaoxi, "is definitely another attempt to soothe market mood." Nonetheless, they called the mortgage lending relief "minimal" and claimed it would "not be enough to prevent cash-strapped developers' stress from increasing further."

Overall, although the CCP and Xi Jinping are hellbent on squeezing out the money that Chinese individuals have saved in order to conceal his bad policy decisions, all of this is destined to be a little band-aid on a shattered limb in the end.

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