The devaluation of China’s currency, the yuan, has plummeted to its lowest point this year due to failed government interventions amid the economic depression.
More money issued by the Communist Party’s financial institutions will be used as a government hedge against the collapse of the banking and financial system, shifting the country’s debt burden onto Chinese nationals, which will worsen the country’s economy, said financial analyst He Bing.
That 10-basis points reduction is not that big a move and much less than the usual 25 basis points of an interest rate cut. But it devalued the RMB significantly, in He Bing’s view, indicating that the Chinese economy is “quite vulnerable.”
In addition, while other countries are fighting inflation and tightening their currencies in the post-COVID period, only China’s central bank has opted to ease money, highlighting that the country’s economy is trapped in a “unique” dilemma, she said, noting that after June 1, the U.S. dollar index fell against major currencies except Chinese yuan.
He Bing believes that another reason for the yuan’s weakness is that interest rates on the U.S. dollar have been rising. In contrast, interest rates on the yuan have changed relatively little, along with the downturn in the Chinese economy and capital outflows from the stock market.
Banking and Financial System
Jing Yuan Finance, an economic commentary video channel with He Bing as the producer, reported on June 22 that the issuing amount of RMB would be probably calculated based on the banks’ bad debts. In other words, the more bad debts the banks have, the more RMB that the CCP government will print out, and the less valuable RMB will be in the hands of the Chinese people.China has not yet erupted into a large-scale financial crisis so far. However, the Chinese Communist Party’s (CCP) financial system has been on the verge of collapse as per Western economic indicators, “That is because the CCP has passed the crisis on the Chinese people,” and RMB devaluation will add to people’s burden, it said.
Jing Yuan Finance reported that by means of intimidation and coercion, the CCP authorities have cut off depositors from demanding to withdraw their savings from the banks, regardless of people’s desperation about the economic outlook and insecurity about their money.
Moreover, China’s communist authorities commonly strip banks of their bad debts and pushes them onto every Chinese citizen to pay, according to Jing Yuan Finance, citing research data that that it traced back to 1999-2000.
At that time, China’s four major state banks—the Bank of China, the Industrial and Commercial Bank, the Agricultural Bank, and the Construction Bank—accumulated a considerable volume of non-performing loans, bringing them to the blink of bankruptcy. In the face of a crumbling financial kingdom, the CCP’s then-ruling Jiang Zemin government set up four major asset management companies—Huarong Assets, Great Wall Assets, Orient Assets, and Cinda Assets—to address the bad debt crisis.
First, the Ministry of Finance of the CCP allocated 10 billion yuan (about $1.2 billion at the average exchange rate in 1999) to each of the four companies as registered capital. Then, the central bank provided 570 billion yuan (about $68.4 billion) for each in refinancing loans; and third, the four companies issued 820 billion yuan (about $98.4 billion) in bonds to their respective banks. Thus, each company had access to more than 1.4 trillion yuan (about $168 billion) to pay off bad debts.
In a word, asset management companies help banks pass bad loans to the state treasury as “government debts,” thus making all a country’s nationals pay for them.
The CCP then came up with its so-called “stock reform,” which facilitated the big Chinese banks going public to raise money, with the Bank of Construction and Bank of China listed on the Hong Kong Stock Exchange in 2005 and 2006, respectively.
From then on, the state banks have also extended risks to stockholders inside and outside of China, Jing Yuan Finance reported.