Slowly but surely, Beijing central planners are starting to panic. After sending mixed signals to the market over recent weeks, sometimes stimulating, sometimes impeding markets, China might go all in and officially launch quantitative easing.
Market News International, the wire service of Deutsche Börse AG, on Monday cited unidentified people saying the People’s Bank of China (PBOC) is considering buying up local government debt similar to the Federal Reserve buying U.S. Treasury bonds with its QE program.
Let’s take a look at why they would do it, how it would work and some potential consequences.
Why?
Since the real estate bubble popped in China, the PBOC finds it harder and harder to push credit to the places where it wants it to do (real estate) through conventional means. The economy has continued to slow and real estate has cooled further. In the meantime, the stock market has gone parabolic.
