China's Cash Crunch

07/08/2013 10:30 am EST


Jim Jubak

Founder and Editor,

Service interruptions in some world banks' Chinese operations are not allowed to be mentioned in their press, and this is not an encouraging sign, says MoneyShow's Jim Jubak.

You know there is a serious problem in China when the government orders people—media—to stop talking about it, and that is where we are in terms of the Chinese cash crunch in the Chinese banking system.  Because the Central Bank has decided that it is not going to revive unlimited amounts of cash, banks have been having trouble finding enough cash. 

That has led to rumors floating around that China is in a cash crunch, banks are going to go broke, and the government has responded to this by taking policy steps to alleviate some of the cash crunch but also—more importantly—telling media don’t say it; don’t use these words; don’t report on it this way.  We want you to be positive; we want you to talk about solutions. 

To do a contrast; about two weeks before this directive went out, there was a weekend when ATMs in China shut down at some of the major banks and the story was that this was regular maintenance.  The outage only lasted for an hour so it may actually have been just regular maintenance but the stories in China’s newspapers were about bank runs; banks running out of money, people not having money, exactly the kind of stuff you get that induces a panic. The directive comes out and a week later, there is the same situation. 

The ATM systems at some of the major banks are shut down for an hour and indeed, the story continued to be reported that the bank’s ATMs did not dispense money, but there was nothing in the press about cash shortages, bank runs, banks running out of cash, and etcetera; a very, very different sense of how you cover this event that had to do with the directive coming out of the Propaganda Offices in Beijing. 

The point—I think—is really that if this was merely a passing problem; if indeed the People’s Bank was about to put a lot of liquidity into the system, you would not get this directive.  It would be a passing problem.  The propaganda apparatus would not go about trying to control how it is being presented.  It is the fact that this is not a short-term problem. 

The People’s Bank of China is indeed trying to crunch cash to try to remove certain excesses from the system.  This is a long-term policy and therefore—since these are steps that are going to play out over the next few months—the Propaganda Ministries have decided they need to get in on the act, because they want to control how this is reported because it is going to last for a while, it is really important, and it could have really damaging effects on the Chinese financial sector and the Chinese economy as a whole if the coverage really wound up saying hey, it is time to panic, guys. 

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