China plans to inject 1 trillion yuan into its state banks to stabilize its ailing economy. This large-scale intervention could have significant repercussions, particularly for Bitcoin, a decentralized asset often seen as an alternative to government monetary policies.
China saves its banks with more than 140 billion dollars
China reportedly plans to inject up to 1 trillion yuan, or about $142 billion, into its major state banks in order to strengthen their capacity to support its economy which has been in difficulty for several months. This is the first time since the 2008 financial crisis that China has considered a liquidity injection of this magnitude.
This financing would mainly come from the sale of new special sovereign bonds, debt securities issued by a government to finance specific projects or deal with crises. Unlike traditional bonds, they are issued on an ad hoc basis and serve targeted purposes.
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Injecting this thousand billion yuan would be a response to the record lack of profitability of state banks :
- Banks' net margin fell to 1.54% at the end of June 2024, below the 1.8% threshold that would be necessary to maintain reasonable profitability;
- The combined profits of commercial banks increased by only 0.4% during the first half of 2024, the weakest increase since 2020.
Nevertheless, the 6 largest Chinese banks still have strong Tier 1 capitalthat is to say the safest financial reserves that they can use to absorb losses in the event of a problem. Additionally, their financial security ratio stands at 11.77%, above the minimum of 8.5% required to guarantee their stability.
Despite everything, the Chinese government seems determined to combat the growing pressure on their profitability by injecting more liquidity, with the aim of restoring profitability, avoiding bankruptcy, and ensuring that these banks can continue to support the economy.
This liquidity would allow banks to continue to grant loans despite the decline in the real estate market, which is also weighing on their margins.
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Bitcoin could benefit from ever more accommodating monetary policies
The massive injection of liquidity by China, a first since the 2008 crisis, recalls the conditions in which Bitcoin was born.
Indeed, the Bitcoin blockchain was presented and launched in the middle of the subprime crisis, a period marked by serious economic consequences around the world, which pushed central banks to print large quantities of liquidity.
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The Times headline, “Chancellor on brink of second bailout for banks”, which became famous thanks to Bitcoin and inscribed in the Genesis block, still resonates 15 years later, and this situation seems to be repeating itself. Satoshi Nakamoto's criticism of the flaws in today's financial system remains more relevant than ever.
If this liquidity injection into China, combined with the more accommodating pivot from the US Federal Reserve (FED), fails, this could spark a significant surge of interest in Bitcoin, which remains impervious to government control.
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Source: Bloomberg
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