PBoC, China's central bank, is having trouble stimulating lending. The trouble now seems to be more demand driven, as the economic slowdown sets in.
Bloomberg: - Combined net lending by Industrial and Commercial Bank of China, China Construction Bank Corp., Bank of China and Agricultural Bank of China Ltd. was almost zero in the two weeks through May 13, Shanghai Securities News reported today, citing an unidentified person familiar with the matter.The slowdown (particularly the lack of demand for loans) is driving interest rates lower. The one-year SHIBOR swap rate is registering the sharpest decline since 2008. Again, swap rates show the market "consensus" of short term-rates in the future - a rate at which someone is willing to "lock in" short term rates for a year or longer (in this case locking in the 3-month SHIBOR rate for a year).
|1-year SHIBOR swap rate|
When we discussed China's inverted yield curve a couple of months back, many dismissed it as supply/demand aberration. But as has been the case in the US, an inverted curve continues to be the best predictor of economic downturns.
|SHIBOR swap curve move|