Last week, hours before 2013 came to an end, the People’s Bank of China delivered an unwelcome surprise to some of the country’s biggest banks. Despite frazzled nerves after a liquidity squeeze a week earlier, the central bank told them it wanted to conduct a bond repurchase operation, a move that would take cash out of their hands for a few days.
The commercial banks – state-owned entities that ultimately answer to the government – had no choice but to oblige.
“Everyone said it was like a new year’s message from the PBoC. They were telling us that money is going to stay tight,” says a senior credit trader with a European bank in Shanghai.
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