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source from：wsj
MARKETS
China Floods Financial System With Cash Ahead of Lunar New Year
New loan facility and record cash injections are aimed at fending off a cash crunch
By SHEN HONG
Jan. 24, 2017 4:44 a.m. ET
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SHANGHAI—China has injected a torrent of money into its financial system in recent days, using a mix of short-term tools aimed at pre-empting a seasonal cash crunch without signaling a shift toward an easier monetary policy.
China’s central bank pumped 1.13 trillion yuan (roughly $165 billion) into domestic money markets last week via its routine operations, a record for one week and the highest since it pumped in 940 billion yuan ($137.15 billion) in mid-September.
The heavy cash injection came ahead of China’s annual Lunar New Year break, which this year begins on Jan. 28, a time when Chinese consumers go on shopping sprees and hand out red packets filled with fresh yuan notes to friends and relatives. Companies also need to set aside funds for tax payments due later this month.
The move also follows a panic selloff in Chinese bonds last month that exposed fresh risks in the country’s debt-driven financial markets.
Analysts say China’s authorities are preferring to use short-term measures to ease financial conditions rather than blunter instruments such as interest-rate cuts, in part because they want to avoid raising concerns about the economy’s health that might in turn encourage more heavy capital outflows from the country.
“All the recent liquidity injections were temporary measures, which also means Beijing remains wary of the negative consequences that formal monetary easing will have on the currency and capital flows,” said Zhu Chaoping, China economist at UOB Kay Hian Holdings Ltd., a Singapore investment bank.
On Friday, the central bank also said it would make 28-day loans available to several unidentified large commercial banks at market rates, via a newly created mechanism called a “temporary liquidity facility.” The People’s Bank of China offered no details on the move but Founder Securities economist Ren Zeping said he estimates it could release another 600 billion yuan to markets.
The combined effect of the central bank’s cash injections and its new loan facility has helped reduce the interest rates banks charge to lend to each other. The weighted average of seven-day repurchase agreements, a form of short-term loan between banks, has fallen back to 2.53% from an 18-month high of 2.76% on Wednesday.
One advantage of the central bank relying more on its money-market operations is that it can quickly pull back if it decides market conditions may have become too easy. The PBOC has partially reversed its easing this week, withdrawing a net 340 billion yuan from markets since Monday.
While the PBOC wants to avoid a cash crunch, it is also eager to avoid fueling asset bubbles with cheap money. The central bank had actually been tightening the supply of inexpensive, short-term funds since September, to discourage a boom in speculative bond investment.
This so-called deleveraging exercise reached a climax in mid-December when a midsize Chinese brokerage’s threat to default on bond repurchase agreements caused a market selloff unseen in three years.
“After that incident, financial institutions have become much more wary of lending to each other,” said a Shanghai-based head of money-market trading at an Asian bank.
In previous years, China’s central bank has relied on more orthodox measures to control liquidity, such as changing the amount of cash it forces banks to hold—the so-called reserve-requirement ratio, or RRR.
“An RRR cut would be permanent and irreversible until the moment you raise the level back up again,” said Suan Teck Kin, economist at United Overseas Bank Group. “This time they are saying: we know you need the money for the Lunar New Year, but after that we’ll take it back.”
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