China money markets face 3 trillion yuan crunch as congress nears

China’s money markets are expected to see a liquidity withdrawal of more than 3 trillion yuan (HK$3.2 trillion) over the remainder of this month, helping to keep funding costs elevated before key meetings of lawmakers in March.

The bulk of the liquidity drain will come from the 2.4 trillion yuan needed to pay back the maturities of so-called policy loans from the central bank. A further 820 billion yuan is expected to be absorbed by bond issuance from local governments, based on monthly estimates from brokerage Huachuang Securities and data compiled by Bloomberg.

Keeping liquidity tight is seen as beneficial to the authorities as a way to help support the yuan at a time of uncertainty over US tariffs. The People’s Bank of China has drained about 1.5 trillion yuan of funds from the money market through its daily open-market operations since traders returned from Lunar New Year holidays on February 5.

“Ensuring interbank liquidity conditions are relatively tight is indeed helpful in defending the onshore yuan amid such a volatile environment,” said Becky Liu, head of China macro strategy at Standard Chartered Bank in Hong Kong. “China will likely keep things stable for the time being,” especially given the potential negotiations on tariffs between US President Donald Trump and China’s President Xi Jinping, she said.