China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch”

China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch”

Tyler Durden on 12/22/2013 21:00 -0500

UPDATE: 7-day repo is now up 140bps at 900bps – as the “liquidity crisis” is worse than any other seasonal effect since the crisis…

How do you “fix” a nations’ banking system’s increasingly desperate need (and dependence upon) for government-provided liquidity without giving in and just providing all the inflation-stoking liquidity the banks demand? Simple – in China – you ban the media from discussing it. As The FT reports, Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue. The censors have warned reporters not to “hype” the multiple-sigma spikes in overnight-funding rates and have forbidden the press from using the Chinese words for “cash crunch.”Of course – early prints in today’s repo market are seeing levels normalize back to around 4-5% (just as Goldman Sachs ‘suggested’ they would because this liquidity spike is nothing but ‘seasonals’ – hhhmm)

Via The FT,

December 22, 2013 12:53 pm

China presses media to tone down cash crunch story

By Jamil Anderlini in Beijing and Simon Rabinovitch in Shanghai

Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue when markets reopen on Monday.

Short-term interest rates for loans in the interbank market shot up last week in an apparent repeat of the cash crunch in June that panicked investors and exposed serious weaknesses in China’s debt-laden financial markets.

Money market rates surged again on Friday, even after China’s central bank announced on Thursday evening that it had carried out “short-term liquidity operations”to alleviate the problem.

That prompted the central bank to publish a longer and more specific statement on Friday, in which it said it had injected Rmb300bn ($49bn) in targeted cash infusions to individual banks in recent days.

The benchmark Shanghai Composite Index fell 2 per cent on Friday, its ninth consecutive day of losses and its longest losing streak in 19 years.

In response Chinese censors have warned financial reporters not to “hype” the story of problems in the interbank market, and in some cases have forbidden them from using the Chinese words for “cash crunch” in their stories, according to two people with direct knowledge of the matter who asked not to be named.

The Communist party’s powerful propaganda department and various other party and government bureaux frequently issue bans and detailed instructions to Chinese media on “sensitive” issues that could undermine party legitimacy.

But interference in financial coverage is less common, in part because Beijing wants to encourage the global perception that China has the same modern, transparent financial markets that exist in other parts of the world.

One large, state-owned, online news portals on Sunday, coverage of the biggest financial story right now in China was limited to a few short factual reports placed in less prominent positions on their sites.

Independent outlets known for their hard-hitting commentary and investigative reporting into China’s financial markets barely mentioned the topic on their homepages.

Caixin, regarded by many as the premier Chinese financial news outlet, featured just a short blog post on the topic buried near the bottom of its homepage.

The top story on the subject from Caijing, Caixin’s main rival, consisted of nothing more than the brief statement released by the central bank on Friday.

But there did not appear to be a blanket ban on the subject, as journalists from at least two major media outlets that cover general and business news told the Financial Times they had not been contacted over the story.

On the popular news portal QQ.com one of the top stories on Sunday was an analysis of last week’s interbank market fluctuations, and several other sites carried opinion pieces from experts on the topic.

So far, the orders issued by propaganda authorities do not appear to be as severe as those issued after the cash crunch in June, when reporters and media outlets were given a written directive ordering them to “explain that our markets are guaranteed to have sufficient liquidity”.

That directive also ordered media to “strengthen their positive reporting” and “fully report the positive aspect of our current economic situation, bolstering the market’s confidence”, according to a copy obtained by the FT.

Coming just six months after the cash crunch in June, the apparent replay last week will be highly embarrassing for the People’s Bank of China, the central bank.

Soon after the June episode, senior government officials told the FT that the country would not see a similar situation again in the short or medium term.

Analysts say the PBoC has been struggling to adapt to a monetary environment that is becoming far more complicated due to the rise of a hugeshadow banking industry over the past few years. In June, and again last week, interbank interest rates mostly soared as a result of the PBoC’s unwillingness to inject liquidity into the market as it attempts to enforce discipline on lenders.

But in both instances the central bank has had to reverse itself and pour huge amounts of cash into the system to bring rates back down to more normal levels.