The People’s Bank of China is preparing for the Lunar New Year holiday next month by flooding the financial system with cash to make sure the ATM machines don’t run dry.
The annual holiday is a time of the year, when the Chinese like to spend. But retailers fear the darkening economic clouds will have consumers holding tightly onto their wallets.
With China’s economic growth falling to 6.9% for 2015, the slowest rate in 25 years, retail sales have been one of the few bright spots in an economy that is watching the manufacturing and the real estate sectors get worse.
However, with retail sales growth in December slipping to 11.1% year on year from 11.2% in November, demand has weakened and layoffs have increased
Typically, during the holiday, Chinese people spend a lot more money eating out at restaurants and buying special foods. It’s also traditional to give gifts to parents and relatives, such as hongbao, red envelopes filled with cash to bring good luck and ward off evil.
However, The Wall Street Journal spoke to some, such as migrant worker Li Li, age 32, who decided not to go home, “so I won’t have to hand out all the hongbao at Lunar New Year.”
WSJ also reports that young people are telling their parents they’re busy in order to minimize the time at home with its obligatory cash outflows. Well, that and they dread having to answer questions about their marital plans.
Corporate profits also signal weaker spending, said analyst Thomas Gatley with research group Gavekal Dragonomics.
“People get pre-Chinese New Year bonuses that reflect how companies did over the past six months, which has been terrible,” Gatley told WSJ.
Industrial profits at larger companies fell 1.9% during the first 11 months of 2015, compared to an increase of 5.3% for the year-earlier period, according to official figures.
Despite all this, the central bank wants to be sure there ‘s enough money for people who want to spend. The PBOC injected 1.5 trillion yuan into the banking system this month, reports WSJ, with more expected before this year’s week-long holiday, which begins Feb. 7.