Concerns Grow over China Hard Landing: China Cuts Bank Reserve Requirements; Exports Slide

China seems to be more concerned with housing bubble tanking than inflationary pressure. How are they going to stimulate domestic consumption given a further decline in exports coming? How are they going to tackle non-performing loans?

We are concerned that odds are pointing at China hard landing.

From Bloomberg:

China cut the amount of cash that banks must set aside as reserves for the second time in three months to spur lending as Europe’s debt crisis and a cooling property market threaten economic growth.

Reserve requirements will fall by 50 basis points effective Feb. 24 the People’s Bank of China said on its website this evening. Before today’s move, the ratio for the nation’s largest lenders stood at 21 percent.

Premier Wen Jiabao aims to steer the world’s second-biggest economy through a property market slowdown and the weakest export growth since 2009, with the commerce ministry last week calling the trade outlook “grim.” The International Monetary Fund said this month that China’s expansion may be cut almost in half if Europe’s debt crisis worsens.

“Growth remains the top concern for policy makers,” Zhu Haibin, a Hong Kong-based economist for JPMorgan Chase & Co. (JPM), said before today’s release. “Monetary policy will be biased toward easing this year.”

China’s exports and imports fell for the first time in two years last month and new lending was the lowest for a January in five years.

Before today's announcement, Ken Peng, a Beijing-based economist at BNP Paribas SA, said the government needs to be “careful not to overshoot monetary loosening, as it did in the financial crisis.” Lingering effects of record lending in 2009 and 2010 include the risk for banks that local government financing vehicles will default, saddling lenders with bad loans.

The government also aims to avoid fueling consumer and property prices. Inflation unexpectedly rebounded to 4.5 percent in January, accelerating for the first time in six months, as a week-long Chinese New Year holiday boosted spending and prices.

http://www.bloomberg.com/news/2012-02-18/china-cuts-banks-reserve-ratios-a-second-time-as-europe-threatens-growth.html

From Zero Hedge:

It was one short week ago that both Australia surprised with hotter than expected inflation (and no rate cut), and a Chinese CPI print that was far above expectations. Yet in confirmation of Dylan Grice's point that when it comes to "inflation targeting" central planners are merely the biggest "fools", this morning we woke to find that the PBOC has cut the Required Reserve Ratio (RRR) by another largely theatrical 50 bps. As a reminder, RRR cuts have very little if any impact, compared to the brute force adjustment that is the interest rate itself. As to what may have precipitated this, the answer is obvious - a collapsing housing market (which fell for the fourth month in a row) as the below chart from Michael McDonough shows, and a Shanghai Composite that just refuses to do anything (see China M1 Hits Bottom, Digs). What will this action do? Hardly much if anything, as this is purely a demonstrative attempt to rekindle animal spirits. However as was noted previously, "The last time they stimulated their CPI was close to 2%. It's 4.5% now, and blipping up." As such, expect the latent pockets of inflation where the fast money still has not even withdrawn from to bubble up promptly. That these "pockets" happen to be food and gold is not unexpected. And speaking of the latter, it is about time China got back into the gold trade prim and proper. At least China has stopped beating around the bush and has now joined the rest of the world in creating the world's biggest shadow liquidity tsunami.

First, here is a chart showing the collapse in the Chinese housing market in all its glory - without a shadow of a doubt the primary reason for the PBOC to do what it did today:

Will the PBOC be able to redirect the "Austrian" money flow into ponzi encouraging prospects? Here is Sean Corrigan with some thoughts:

Chinese Real M1 joins that of parts of Europe, the UK, India, and several other, key EM nations in dropping into negative territory and hence strangling the monetary impetus towards both dubious short-term output gains and more certain quickening of the pace of price appreciation which has driven so much of the recovery so far. This means that only the US is left creating sufficient real new money to keep things supported at present - a phenomenon not surprisingly being reflected in its run of somewhat improved macro numbers in recent months.

For China itself, this is unprecedented - at least in the last 15 years or so during which China has assumed the role of marginal buyer of inputs a fortiori - and it represents the latest stage in a jarring, screeching, airbag-triggering deceleration from 2010's extraordinary 37.5% growth rate. You don't have to be an Austrian to see what this must imply for all the non-remunerative, hyper-Keyensian, 'stimulus' projects launched to offset the Western slump, post-LEH/AIG which litter the Middle Kingdom's landscape, both figuratively and literally.

While we must be slightly tentative in our inferences - due to the disruptive arithmetical effect of that highly moveable feast which is the Lunar New Year - it cannot be denied that several other indicators - imports, container traffic, power consumption, for example - are also flashing Hard Landing Red here.

Watch this space...
http://www.zerohedge.com/news/china-cuts-rrr-50-bps-despite-latent-inflation-cushion-housing-market-collapse