Analysis
Opinion

China’s Deflationary Debt Crisis

China’s Deflationary Debt Crisis
A clerk arranges bundles of 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui Province on March 17, 2014. Reuters
Law Ka-chung
|Updated:
Commentary

Last week the People’s Bank of China (PBoC) cut the overall required reserve ratio (RRR) by 25 basis points (bps). PBoC claimed officially that an amount of 530 billion yuan or equivalently 83 billion USD capital would be released. This sounds a huge amount. Imagine, without any interest rate cut or extra money printed, such RRR cut can generate an amount of exactly 20 percent of the first quarter GDP. But the newly released GDP increased only by 1.3 percent on a quarter-on-quarter basis; even adding inflation to make it nominal it is still way below 20 percent.

Law Ka-chung
Law Ka-chung
Author
Law Ka-chung is a commentator on global macroeconomics and markets. He has been writing numerous newspaper and magazine columns and talking about markets on various TV, radio, and online channels in Hong Kong since 2005. He covers all types of economics and finance topics in the United States, Europe, and Asia, ranging from macroeconomic theories to market outlook for equities, currencies, rates, yields, and commodities. He has been the chief economist and strategist at a Hong Kong branch of the fifth-largest Chinese bank for more than 12 years. He has a Ph.D. in Economics, MSc in Mathematics, and MSc in Astrophysics.
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