Jefferies: China is Conducting ‘Back-Door QE’ Operations to Juice the Economy

Why would China sit back and watch Europe, Japan and the U.S. enjoy all of the fun, without partaking in some hijinx themselves?

Jefferies is out with a report that says recent actions by the PBOC to expand lending facilities to state owned banks is QE, in a backdoor, secretive fashion.

Essentially, China is increasing the amount of money they’re lending to state owned banks, who in turn take the money to buy Chinese gov’t bonds. China takes the money, says ‘thank you very much’, and then spends it on making fucking islands in the middle of the China Sea.

The analysts say the PBOC has increased lending to state-owned banks, with the latter subsequently snapping up Chinese government bonds aided, in part, by the central bank’s liquidity infusions.

In order to offset the contraction of the PBOC’s balance sheet due to capital outflows and dollar repayments, the central bank engaged in a form of ‘backdoor QE’ in our view. Alongside the introduction of short-term monetary instruments such as Medium-term Lending Facility (MLF) and Standing Lending Facility (SLF), the PBOC has moved away from using conventional interest rate and RRR cuts.

Wei Yao, China economist at Societe Generale SA, adds: “You might not want to call this QE as it’s not a textbook definition, especially since reliance on these new and short-dated instruments, relative to the average-weighted maturity of Chinese government bonds, would expose banks to duration mis-matches.” But she adds that the introduction of new lending instruments should be seen in a bigger context: “The PBOC is transforming its balance sheet to that of a Western central bank by increasing the weight allocated to domestic assets.”

How wonderful.

QE for life. Get in the matrix.

Central banks will continue to conduct QE operations, indefinitely, because they’ve proven to keep yields low, markets high, and the people docile.