China faces escalating credit crisis as central bank plans 800 billion yuan outright reverse repo operation

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The central bank will carry out 800 billion yuan of outright reverse repurchase operations!
Securities Times
2026-02-03 20:10
Official account of Securities Times

Big move by the central bank.
The People’s Bank of China (hereafter “the central bank”) announced on February 3rd that it will conduct 800 billion yuan of outright reverse repurchase operations on the 4th, with fixed amounts, interest rates through bidding, and multiple bid levels, for a term of 3 months (91 days). Given that 700 billion yuan of outright reverse repos will mature this month, the central bank’s operation will result in a net injection of 100 billion yuan after this move.

Regarding the increase and continuation of this outright reverse repurchase operation, market institutions generally believe that the main purpose of the central bank is to avoid liquidity shocks caused by government bond supply. Additionally, factors such as the peak cash withdrawal period before the Spring Festival holiday and the overlapping tax periods after the holiday, which may cause cross-month fund movements, could disturb liquidity in the banking system in February.

“The main disturbance to liquidity in February may be the Spring Festival and the pace of government bond issuance,” said Yin Ruizhe, Chief Fixed Income Analyst at Guojin Securities, in a research report. Based on January’s issuance scale, the net financing scale of government bonds in February might slightly increase by 200 billion yuan, and due to fewer working days caused by the Spring Festival holiday, the issuance rhythm could be relatively concentrated.

There are a total of 1.2 trillion yuan of outright reverse repos maturing in February. Considering there is also a 6-month operation within the month, and that the net injection of outright reverse repos for both tenors has continued for 8 months, market institutions remain optimistic about net injections from these two tenors.

“Whether liquidity will fluctuate in February ultimately depends on the central bank’s injections,” said Liu Yu, Chief Economist at Huaxi Securities, in a research report. He estimates that the net injection of outright reverse repos in February may be around 500 billion yuan to meet banks’ medium-term funding needs. For the Spring Festival, the central bank may adopt a mixed approach of open market 7-day and 14-day reverse repos to signal support. To hedge against fund fluctuations caused by tax periods and cross-month effects, mid-term lending facility (MLF) injections at the end of the month may also be increased.

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【Interpretation Post for Forum Comrades】

Comrades, the following news should not be viewed as a “technical operation”; it itself is a public exposure of China’s current capitalist credit crisis. I will explain this news clearly in three steps: “Why must we do this now—what does it indicate—what consequences will it bring”.

1. What is this news about? First, translate it into plain language

The central bank announced:

Take out 800 billion yuan, lend it to banks for 3 months first.

Pay attention to several key pieces of information (all in the news):

  1. This is not a minor fix, but a “big move”
    800 billion is not symbolic; it’s also a “continued increase” (700 billion maturing, plus an additional 100 billion).

  2. The reason is not “the economy is good,” but “fear of trouble”
    The exact words are:

    • To prevent “liquidity shocks” from government bond issuance
    • To prevent cash withdrawals during Spring Festival
    • To prevent tax periods and cross-month withdrawals

  3. Market judgment is also consistent: more easing is needed
    Institutions directly said: whether February can be stable depends on whether the central bank gives money or not.

In short, the main meaning of this news is:

The banking system cannot hold on by itself now; it must rely on the central bank to advance funds to prevent chaos.

2. Why do “government bond issuance + Spring Festival + tax periods” push banks to seek rescue from the central bank?

This is not a coincidence but a sign that the credit system is already so weak that it cannot withstand even a small shock.

:one: Concentrated government bond issuance = cash withdrawal from banks

Government bond issuance is not “money out of thin air,” but:

Banks use real cash to buy bonds.

In normal times, this isn’t a big deal.
But now, the problem is:

  • Bank funds are already heavily locked in:
    • Real estate loans
    • Local government bonds (城投债)
    • Various “rollover” projects
  • Very little cash is actually available for circulation at any time.

If the government issues bonds intensively in a short period, it’s like:

Suddenly scooping a large ladle of water from an already tight pool.

:two: Cash withdrawals during Spring Festival =群众在“自保”，不是消费繁荣

The news mentions “peak cash withdrawals during Spring Festival,” which many might misunderstand as “festive cheer.”

In reality:
*群众收入不稳

  • Unemployment and salary cuts are common
  • Medical, mortgage, and support pressures are high

So, more cash withdrawals during Spring Festival are actually:

People keeping cash to hedge risks, not for large-scale consumption.

What does this mean for banks?

Deposits still look intact, but can be withdrawn at any time.

:three: Tax periods + cross-month settlements = money “concentratedly withdrawn”

Businesses paying taxes and banks settling across months will cause:

  • Money to move from the banking system
  • Concentrated back into fiscal or settlement accounts

This is not a problem when credit is healthy, but in the current state, it’s:

Multiple withdrawals stacking up, making short-term cash very tight for banks.

3. So, why are banks so “fragile” now? The root cause isn’t finance

Comrades, remember one key point:

If capitalist reproduction were “normal,” the credit system wouldn’t fear these seasonal shocks.

What does it indicate now?

:check_mark: The root is the severe economic crisis caused by overproduction in capitalism

The most core facts in recent years are:

  • Goods can’t sell
  • Houses can’t sell
  • Investment returns are low
    *群众买不起，也不敢买

As a result:

  1. 企业回款慢，甚至断裂
  2. 企业靠贷款维持
  3. 贷款到期靠“续贷、展期、滚动”
  4. 银行账面资产虽多，但都靠“继续借新钱”才能避免爆仓

This is a typical cycle:

Overproduction → Insufficient profits → Debt maintenance → Weak credit

4. Therefore: why does the “central bank have to inject liquidity”? It’s not for growth, but to prevent collapse

The conclusion about this news must be clear:

:cross_mark: This is not “stimulating the economy”

  • No mention of expanding production
  • No mention of increasing employment
  • No mention of raising群众收入

:white_check_mark: It’s about preventing the credit chain from breaking

What is the central bank doing now? Essentially two things:

:one: Providing “temporary cash” to banks

To ensure that during government bond issuance, withdrawals, and tax periods,
they don’t cause chaos because they can’t come up with short-term funds.

:two: Sending a signal to the market: “Don’t panic, I’ve got you”

During periods of fragile credit, panic itself can trigger crises.

What the central bank needs to do is:

Use national credit to replace the market’s mutual trust, which is already fragile.

5. Why is this exactly a manifestation of the “capitalist credit crisis”?

Marxism has long explained:

The expansion and contraction of capitalist credit depend on the economic cycle; economic crises inevitably lead to credit crises.

This news shows three things:

  1. Credit can no longer self-balance
    Otherwise, there would be no need for repeated “net injections” by the central bank.
  2. Debt is replacing profits to support the economy
    The government relies on bond issuance, banks rely on rollover loans, enterprises rely on rolling over debt.
  3. National credit is coming to the rescue systemically
    This is not strength, but systemic dependence.

6. Be straightforward: what does this news really tell us?

Comrades can understand this news as one sentence:

China’s capitalist economy, under the long-term pressure of overproduction and群众贫困, has entered a stage where “credit depends on the central bank to keep it alive.”

  • As long as there’s no blood transfusion, the credit system will tighten
  • Any small concentrated shock will overwhelm banks
  • Therefore, the central bank must act preemptively, repeatedly, and on a large scale

This is not an occasional operation but a normal response under systemic crisis.

7. Final summary (for forum use)

This 800 billion yuan outright reverse repo is not a sign of economic improvement, but a reflection that, under overproduction, low profits, and rolling debts, China’s capitalist credit system has become highly fragile.
The state is using its own credit to support the entire capitalist system, delaying the crisis rather than solving it.

This is the true way to understand this news.

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The central bank takes out 800 billion, where does this money come from, printing banknotes?

If local governments keep issuing bonds, it means government investment in other projects, which counts as government spending. When the government has no money, it borrows from banks. If the government cannot repay, the banks lose money. Is that correct? I don’t quite understand the relationship between the government and banks. I always thought banks belonged to local governments and served them. Because the central bank represents the national fiscal part, it has a hierarchical relationship with other local banks, so to help local governments issue bonds, does the central bank need to step in first to assist the local banks?

Too unbelievable, not allowed to withdraw money.

If the people withdraw too much cash, banks will run out of funds, so cash withdrawals are limited. But where is all the cash?

It seems I understand now: real estate companies and the government borrow money from banks to invest, creating a bunch of debts that they can’t repay. Banks originally have no money, and if people still want to withdraw cash, banks will go bankrupt. Banks have no money because enterprises and the government spent money they can’t pay back. They can’t pay back because of an economic crisis—overproduction, goods can’t be sold, no profit, and debt just keeps rolling over. Where did the money go?

Exactly, exactly.

Is there a real-world example of “keeping the capital that the capital users own in its own hands”? Usually, when workers want to withdraw money and can’t, it shouldn’t be considered that capital is being withheld.

Indeed, it all boils down to an economic crisis—overproduction is too severe, and goods simply can’t be sold.

The so-called “mid-term correction” is too reactionary.

I used to not understand why people must withdraw cash; I thought with mobile payments, cash transactions weren’t necessary. Now I realize, for example, in hospitals and other places, there are various non-cash payment options like Pay, and in recent years, many mobile payment methods have suddenly appeared to replace cash payments. This reduces cash flow and keeps money in banks to lend to capitalists and invest in government projects. Without these mobile payment methods, banks would have gone bankrupt long ago.

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[A Focused Explanation Post for Comrade Cedar｜Clarifying Where the “Money Comes From, Where It Goes, and Why Cash Is Restricted”]

Comrade Cedar’s series of questions actually touch on all the key links of the banking credit crisis, but they got tangled up in the relationships between “bank—government—central bank—cash—mobile payments.” Here, I will not be abstract or skip steps but will explain in a Q&A format.

1. The central bank releases 800 billion, where does this money come from? Is it “printing money”?

First, the conclusion: It’s not directly printing paper money with a printing press, but essentially creating new central bank credit.

To clarify:

  • The money of the central bank is not derived from tax revenue saved by the fiscal authorities.
  • The central bank also does not rely on deposits.
  • Its “money” is generated through accounting entries.

You can think of the central bank as existing like this:

The central bank has the authority to write on its ledger: “I owe you 800 billion.”
This “IOU” is used as money throughout the entire financial system.

When the central bank conducts reverse repos:

  • It adds 800 billion to commercial banks’ accounts.
  • The banks’ accounts immediately increase in funds.
  • This is not borrowed from others; it is credit directly created by the central bank.

So, fundamentally:

It’s not printing paper money but printing “more advanced credit.”

2. What is the relationship between the government and banks? Are banks just “working for local governments”?

Your previous understanding is common but incorrect, and needs correction.

:one: Banks are not “subordinate departments” of local governments.

  • Banks are capitalist financial institutions.
  • Local governments are debtors.
  • The relationship between them is:
    :backhand_index_pointing_right: Lending relationship, not hierarchical.

Even state-owned banks:

Their task is not “serving local governments,” but “ensuring capital recovery and interest.”

:two: What actually happens when local governments issue bonds?

Simply put:

  • Local governments need money (for infrastructure, debt repayment, stability)
  • They have no money → issue bonds
  • Banks, funds buy the bonds → give money to the government
  • The government spends the money

This step is completely normal, but the problem lies afterward:

How will the government repay the debt in the future?

Normally, it relies on:

  • Taxes
  • Land sales
  • Economic growth

But now:

  • Real estate crashes
  • Land sales stall
  • Tax base shrinks

As a result:

Unable to repay debt, they can only roll over new debt to pay old debt.

3. You asked a very good question: Where did the money go?

This is a common confusion.

The key sentence:

Money has not disappeared nor been “eaten up”; it has transformed into “capital forms that cannot be used or recovered as cash.”

Specifically:

  • Banks lend money to:

    • Real estate companies
    • Urban investment platforms
    • Various projects

  • The money is used to:

    • Build buildings
    • Repair roads
    • Acquire land
    • Conduct construction

These things all exist in reality, but the problem is:

They can no longer be smoothly turned back into cash.

  • Houses don’t sell
  • Projects are unprofitable
  • Taxes can’t be collected

Thus:

“Money” becomes “dead capital.”

Banks record assets on their books,
but in reality, cash cannot be recovered.

4. Why does it become dangerous when people withdraw cash from banks?

You are close to understanding, but let me clarify.

The basic structure of a bank is:

  • Assets: loans, bonds (long-term, slow)
  • Liabilities: deposits (can be withdrawn at any time)

Banks can operate normally only if:

Not everyone withdraws cash simultaneously.

But now, three things are happening:

  1. Enterprises and governments cannot repay their debts.
  2. Banks are afraid to lend to each other.
  3. People are facing hardships and need cash.

So:

Assets are there, but cash is not.

When a large number of people withdraw cash or make large transfers:

Banks will face:

Not “bankruptcy,” but “immediate inability to provide cash.”

5. You asked: If cash withdrawals are restricted, where is the cash?

This is a very practical question.

Cash mainly resides in three places:

  1. Central bank vaults
  2. Commercial bank vaults
  3. A small portion already withdrawn and circulating in society

But note:

The banking system is not designed for “everyone to withdraw cash at any time.”

If all deposits were converted into cash:

  • It wouldn’t just affect banks
  • It would immediately collapse the entire credit system

6. You asked about the key phrase:

“Keeping the part of capital that the capital user owns in their own hands” — what does this mean? Are there real-world examples?

This is a very profound question.

It’s not about “workers can’t withdraw their money,” but rather:

In a crisis, loaned capital no longer lends to functional capital, but instead locks the already borrowed or supposed-to-flow capital in its own hands.

Real-world examples include:

  1. Companies have money on their books but are frozen or restricted

    • Banks require “special-purpose funds”
    • No transfer allowed
    • No early disposal permitted

  2. Renewal of loans under stricter conditions

    • Require additional guarantees
    • Require more collateral
    • Require cash to stay in bank accounts

  3. Prepayment of loans is encouraged

    • People and companies prepay mortgages
    • The actual effect is:
      Locking future disposable funds in banks

This is:

“Locking the part of capital that the capital user could still control, in the hands of lenders.”

7. Why do people rush to cash during a crisis? Can’t mobile payments do the job?

Your question is something many only realize late.

The key point:

Mobile payments are not a substitute for cash; they are just “a way to operate bank credit.”

During a crisis:

  • Transfers may be restricted
  • Channels may be shut
  • Settlements may be delayed

And cash is:

The only thing that doesn’t require “performance” from others.

This is crucial not only for workers:

  • Functional capitalists
  • Small and medium enterprises
  • Wholesalers
  • Self-employed individuals

All need cash to survive during a crisis.

8. Your final judgment is very close to the truth.

You said:

“If there were no mobile payments, banks would have gone bankrupt long ago.”

This can be slightly refined to be very accurate:

Mobile payments are not for “convenience of the masses,” but objectively greatly delay the outbreak of the credit crisis, because they reduce cash redemption pressure and keep funds as much as possible within the banking system.

But note:

This can only delay, not solve.

9. Here is a complete “causal chain” for you to review repeatedly:

  1. Inherent contradictions of capitalism → overproduction
  2. Goods cannot be sold → surplus value cannot be realized
  3. Functional capital cannot repay debts → lending capital loses its basis
  4. Bank assets “on the books” but cash not present
  5. Lending relationship breaks down → credit contraction
  6. Both the masses and capitalists demand cash → bank run pressure
  7. Central bank is forced to backstop → creating new credit delays collapse

10. A one-sentence summary for you:

The banking credit crisis is not that money suddenly disappeared, but that the capitalist mode of production can no longer provide stable interest income for lending capital; the difference between cash and mobile payments is who depends less on others’ performance during a crisis.

What you are asking now is the deepest layer of the capitalist credit crisis.

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So now, under the guise of anti-fraud measures, major banks are increasingly restricting users’ transaction amounts, transfer amounts, and cash withdrawal amounts, and are also tightening restrictions on the issuance of Type 1 cards. The last time I went to the Bank of China to get a card, the lobby manager told me that the transaction, transfer, and cash withdrawal limits within half a year were all restricted to 5,000 yuan and could not be lifted in any way, I was shocked. I thought he was giving me a Type 2 card, but it turned out to be a Type 1 card, and he said this was the bank’s regulation. It shows that China’s credit system is now completely broken, and it still relies on the central bank to constantly inject liquidity to maintain the cash flow of various banks. Ultimately, this is caused by an economic crisis; under such a crisis, the credit system will inevitably tighten. If it weren’t for the state machinery forcibly restricting bank depositors’ transaction amounts, many banks would have already been bankrupted by runs. Of course, implementing this policy also has its impacts. Monarchs cannot issue decrees on economic conditions. The current restrictions lead to a slowdown in capital turnover, hinder the financing of the bourgeoisie, and make it difficult for the masses to consume. As the central government deteriorates day by day, we are getting better day by day.

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The root cause of the capitalist credit crisis is still an economic crisis of overproduction. The reason why China’s credit system is facing such a severe crisis is that all the banks have no money, which is because the economic crisis is too severe. As analyzed in another post, China’s past reckless expansion relied on land fiscal revenue, continuous infrastructure development, and fiscal deficits, then constantly outsourcing debt to banks. When real estate income was high and the government also had land fiscal revenue, this system could still be maintained because real estate could generate profits for banks, and the government could also spend enough money to pay off bonds, and infrastructure could continue to be built. But now China’s real estate economy has completely collapsed, and those local government urban investment companies and real estate companies’ bad debts are no longer being paid, leaving banks with a pile of mines. The money has already been wiped out, leaving only a pile of bad debts. Plus, during the economic crisis, China’s capitalist industry and commerce have already been severely depressed, suffering serious blows and destruction. Chinese officials have to admit that by January 2026, fixed asset investment has declined, and in 2025, the entire year’s fixed asset investment showed a downward trend compared to the previous year. This is the first time in decades that fixed asset investment has decreased in China. Moreover, China’s producer price index and consumer price index are both maintaining a declining or stable trend. This indicates that the crisis of overproduction is very serious; the bourgeoisie of the first and second categories are forced to lower prices to sell goods, intensifying the anarchic competition, which shows that the inherent contradictions of capitalism are erupting fiercely. Under these circumstances, capitalist enterprises originally have little profit margin, and bank profits come from the profits of capitalist enterprises. The interest rate must be lower than the profit rate. In this situation, banks naturally cannot recover much interest, and all the previous bad debts are stuck in their hands. Depositors also want to withdraw money, so banks are actually facing a serious run and bankruptcy danger. If it weren’t for the Chinese reform system, it would have already exploded like the United States and Japan in the past. However, the current reform system is using various administrative orders to forcibly suppress the economic crisis, which will only make the future economic crisis more violent. The form of revolution is becoming increasingly mature.

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This actually reflects Marxist dialectical materialism. Originally, the capitalist credit system was designed to save circulating capital, accelerate capital turnover, increase profits, and serve the development of capitalism. But now, it has instead deepened the capitalist crisis and accelerated the demise of capitalism. In the past, when the credit system expanded, banks encouraged people to borrow and spend in advance. Now, because it faces its own credit crisis, it has restricted transactions and transfers. A tool that accelerates capital turnover has instead become an obstacle to capital turnover. This essentially means that the capitalist system itself has reached the point of its demise.

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The credit system has now become a parasitic growth on the parasitic system of capitalism. It is the parasite among parasites. Originally, lending capital was about acquiring ownership of capital and charging interest to the users of capital to help accelerate capital turnover. Now, it has instead kept all the capital owned by the users of capital in its own hands to survive the crisis. What was originally meant to accelerate the development of capitalism has, at the critical moment of the capitalist crisis, abandoned functional capital first to save itself.

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I think this is because China has an export-oriented economy, and a trade surplus leads to an increase in the exchange rate, so it is necessary to artificially lower the exchange rate against the US dollar. Implementing an easy monetary policy, making the value of the renminbi gradually decrease, to ensure exports. In any case, it harms the interests of ordinary people and only benefits business owners.

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This is not a typical “loose monetary policy”; the central bank engaging in reverse repurchase bonds from lower-level banks is simply injecting money into these banks, reflecting the relationship between the central bank and the subordinate banks, and more importantly, the internal relationships within the banks, although it also increases the money supply to society. This measure was only started in the mid-term correction of 2024; in the past, they used pledge-style repurchase, but now it is outright repurchase. On one hand, it is an opportunity to take back bad debts from local banks and financial companies; on the other hand, it is about injecting cash into them. The reason why local banks have no cash is because the economic crisis is too severe, many bad debts cannot be recovered, banks are afraid to lend to each other, and people’s lives are difficult, requiring access to deposits at any time. This policy more clearly reflects the crisis of China’s credit system rather than simply increasing the money supply to cause inflation. The Chinese government usually prefers to induce inflation by lowering reserve requirements and implementing deficit policies. On the other hand, lowering the renminbi exchange rate has nothing to do with domestic inflation or deflation; manipulating the exchange rate relies on foreign exchange market operations. The exchange rate has nothing to do with the amount of money in the domestic market; the key is whether the domestic currency is in short supply or excess in the international market.

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【Forum Reply | Response to Comrade Saputri’s View on “Export—Exchange Rate—Loose Monetary Policy”】

Comrades, here we need to separate several issues that are often mixed together, otherwise we will misinterpret the nature of this round of central bank’s outright repurchase operations.

In Comrade Saputri’s judgment, part of it is a common routine in typical export-oriented capitalist countries, but it does not apply to this news, nor to China’s current realistic situation. Below, I will follow the direction already pointed out by Comrade Fenghuo to clarify the issues thoroughly.

1. This policy is not aimed at “depressing the exchange rate to stimulate exports”

First, clarify the conclusion:

The central bank’s use of outright repurchase is not primarily for export competitiveness, nor to lower the RMB through inflation.

The reasoning is simple and grounded in reality.

:one: This set of tools does not directly act on the foreign exchange market

  • Outright repurchase:

    • Targets domestic banks
    • Operates in the interbank market
    • Handles whether banks have cash and dare to lend to each other

  • Exchange rate:

    • Determined by the foreign exchange market
    • Mainly relies on central bank foreign exchange interventions, capital controls, and the foreign exchange settlement and sale system
    • Is not a mechanism of “whether the central bank gives banks cash or not”

Comrade Fenghuo’s point is very critical:

Exchange rate and the amount of domestic currency are not directly related; the key is the supply and demand of the domestic currency in the international market.

This is correct.
If “domestic money supply increases → exchange rate falls,” then the RMB would have already collapsed.

2. This is also not a typical “loose monetary policy”

Comrade Saputri interprets this operation as:

“Implementing loose monetary policy, lowering the RMB value, and ensuring exports”

This judgment may look similar in form, but is fundamentally incorrect.

Why?

Because typical loose monetary policy aims to:

  • Stimulate investment
  • Expand production
  • Boost demand
  • Make capital “more willing to invest abroad”

But this central bank operation is the opposite.

:one: Money only circulates “between the central bank and banks”

The effect of this outright repurchase is:

  • Central bank → provides cash to banks

  • Banks → avoid short-term liquidity shortages

  • But this does not mean:

    • Banks dare to lend to enterprises
    • Enterprises dare to expand production
    • People’s income increases

This is not about “activating capital”, but about:

Preventing the banking system from failing due to cash shortages and mutual distrust.

:two: The real tool for “inflation” has been used before, and it’s not this

Comrade Fenghuo’s statement is very key:

The Chinese government usually prefers to induce inflation by lowering reserve requirement ratios and increasing fiscal deficits.

This is historically clear:

  • Lowering reserve requirements → banks can lend more
  • Fiscal deficit → government directly spends into society

Currently:

  • Space for reserve requirement reduction is limited
  • Fiscal deficits are already high
  • Society’s demand cannot be stimulated effectively

Therefore, the central bank is forced to shift to:

A credit bottom-line mode of “supporting banks without full-scale liquidity release.”

3. This policy truly reflects that the credit system is no longer stable

Comrade Fenghuo has already touched on the core; I will complete the logical chain for better understanding.

Why do local banks have “no cash”?

Not because they are “poorly managed,” but due to the combined pressures of:

:one: Deep economic crisis, bad debts uncollectible

  • Real estate bubble burst
  • Local financing platforms rely on rolling debts
  • Corporate profits are low, and repayments are slow

As a result:

Banks hold a bunch of debts that cannot be converted into cash immediately.

:two: Banks are afraid to lend to each other

In a credit crisis, what do banks fear most?

  • You lend me money
  • If you suddenly default
  • I cannot recover my funds

So, there will be:

“Money is within the system, but no one dares to lend to anyone else.”

This is a typical symptom of a credit crisis.

:three: People’s livelihoods are difficult, deposits may be withdrawn at any time

This is very realistic and important:

  • Unemployment, salary cuts
  • Medical, mortgage, and support pressures
  • People must keep cash on hand to hedge risks

For banks, this means:

Deposits appear stable but are highly sensitive.

During festivals, tax periods, or concentrated payment times, deposits can be suddenly withdrawn.

4. Why does the central bank prefer “outright repurchase” over “collateralized repurchase”?

This is the “deep meaning” of the new tool.

:one: Collateralized: can only lend money, cannot resolve asset problems

:two: Outright repurchase: takes assets along with cash

In simple terms:

The central bank is not only issuing cash but also “handing over difficult-to-handle bonds from local banks and financial companies.”

This is the key point that Comrade Fenghuo pointed out and Comrade Saputri did not realize:

This is a self-rescue of the credit system, not an economic stimulus.

5. This is different from “export-oriented economy”

China is of course a major exporter, but the current issues are:

  • Exports cannot solve domestic problems:

    • Overproduction
    • Poverty among the masses
    • Declining returns on investment

  • Nor can they solve:

    • Local government debt
    • Bad real estate debts
    • Banking system’s credit tension

Therefore, this central bank operation is not aimed at making business owners earn more export profits, but to:

Prevent the banking system from collapsing first during the economic crisis.

6. Summary: One sentence for forum comrades’ judgment

This disagreement can be summarized as:

Comrade Saputri’s understanding applies to “the monetary stimulus logic of normal export-oriented capitalist countries”;
Comrade Fenghuo’s judgment better fits China’s current “overproduction + credit crisis + highly fragile banking system.”

And because of this:

The outright repurchase reflects that it’s not about whether the RMB should depreciate, but that China’s capitalist credit system has already had to be directly supported by the central bank.

This is the core understanding of this policy.

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What is the deeper meaning behind the central bank’s creation of a new tool: buyout-style reverse repurchase?
2024-10-29 09:08:46 Source: Yicai
At 8:00 on October 28, the central bank officially announced the creation of a buyout-style reverse repurchase tool, improving the liquidity management framework and maintaining a stable liquidity environment. This is the central bank’s second new tool after temporary repo and government bond trading.

The central bank announced that the counterparties of the buyout-style reverse repurchase tool are primary dealers in the open market, and in principle one operation is conducted per month with a term not exceeding one year. The open market buyout-style reverse repurchase uses fixed quantities, rate bids, and multi-price final bids. The repurchase targets include government bonds, local government bonds, financial bonds, corporate credit bonds, etc. The operation results will be disclosed on the People’s Bank of China website.

Yicai reporters learned from people close to the central bank that with this buyout-style reverse repo, institutions can bid at different interest rates according to their own conditions, and winning rates will be determined in descending order; the winning rate for each institution is its bid rate. This can reduce “free-riding” behavior during rate bidding and more truly reflect institutions’ funding needs; also, since no new policy-rate instrument is added, it underscores that this tool is purely a liquidity injection instrument.

Positioned as a liquidity management tool

After the central bank’s announcement, it sparked market hot discussion. What exactly does the buyout-style reverse repurchase tool do? How does it differ from existing tools? What is the purpose? How will it affect the market?

It is understood that the open market buyout-style reverse repurchase is positioned as a liquidity management tool. According to the central bank’s announcement, multi-price bidding is one of the features of this tool. Citic Securities’ Chief Economist Ming Ming said that the bid method for buyout-style reverse repurchase is similar to MLF (Medium-term Lending Facility) — fixed quantity, rate bidding, i.e., the central bank decides the total liquidity to be injected, but the operation rate is determined by market bids. MLF is a single-price bid, i.e., winning institutions obtain MLF funds at the same rate.

In Ming Ming’s view, the innovation of the multi-price bid mechanism makes the winning rate better reflect market funding demand and rate pricing. It is expected that the overall rate of buyout-style reverse repo will be lower than the MLF rate, helping to further reduce institutions’ funding costs; it also shows the central bank’s greater emphasis on interest rate liberalization and the function of interest rate control.

Wang Qing, Chief Macro Analyst at Dongfang Jinchen, believes that MLF’s single-price bidding can cause that rate to still carry some policy-rate color. In each buyout-style reverse repo operation, there will usually be more than one winning rate. This will further dilute the policy-rate color of the bidding rate and emphasize its purely liquidity management tool role.

In addition, the range of repurchase targets is another feature of this tool. The buyout-style reverse repurchase includes government bonds, local government bonds, financial bonds, corporate credit bonds, etc., with a very wide scope, especially credit bonds without explicit credit ratings.

By comparison, MLF eligible collateral includes government bonds, central bank bills, policy financial bonds, high-grade credit bonds, and since June 2018 has added micro and small enterprises’ bonds, green bonds, and “three rural” financial bonds, as well as AA+ and AA-rated corporate credit bonds (prioritizing bonds involving micro and small enterprises and green economy), plus high-quality micro and small enterprise loans and green loans newly included in MLAs collateral scope.

Ming Ming said the buyout-style reverse repo’s broadened targets to basically all rate bonds and credit bonds will help further improve liquidity across various bonds and facilitate primary dealers’ participation in buyout-style reverse repos.

Relieving collateral freezing pressure

At present, China’s money market mainstream model is collateralized repos. After more overseas investors enter China’s bond market, they are more accustomed to the buyout-style reverse repurchase commonly used overseas.
In practice, in collateralized repos, the collateral is frozen in the funding party’s account and cannot circulate in the secondary market; in extreme cases such as default, the rights of the funding party are not well protected.
Buyout-style reverse repos can relieve the liquidity regulation pressure on financial institutions by avoiding collateral freezing.
Ming Ming believes that the core difference between buyout-style reverse repo and collateralized reverse repo lies in ownership and control of the collateral. After the central bank conducts buyout-style reverse repos, the underlying assets can be resold by outright sale (for government bonds, central bank bills, etc., high-liquidity assets) and, with SFISF, swapped out; multiple tools can work together to widen the operation space and better convey monetary policy signals.

Sun Maohua, Macro Researcher at Guangda Bank, gave an example: “For instance, the primary dealer and the central bank agree to buy back government bonds on a specific date three months later at a fixed price (quantity, type, and price are all fixed). Because it is buyout-style reverse repo, the primary dealer’s government bonds remain in the central bank’s account, and the central bank can dispose of or trade them within those three months, provided that on the agreed date the central bank has enough quantity of bonds of the same kind to resell to the primary dealer.”

In addition, compared with ordinary reverse repo tools in the open market, the central bank’s use of the buyout-style reverse repo tool also differs in operation maturity.
Wang Qing pointed out that ordinary reverse repos typically have a 7-day maturity; since 2020 the longest has been 14 days, mainly to smooth short-term fluctuations at month-end, quarter-end, and holidays. The buyout-style reverse repo’s term does not exceed 1 year.

A market authoritative expert said that the central bank’s tools are more diversified and are expected to promote the development of buyout-style repo across the market. The central bank’s introduction of the buyout-style reverse repo tool enriches its own toolkit and can set an example for the market to develop buyout-style repo, easing collateral-freezing pressure on liquidity indicators and continuously improving liquidity, safety, and internationalization in the interbank market.

Hedge against MLF maturities at year-end

According to Wind data, this November and December there will be maturities of 1.45 trillion MLF each, totaling 40% of current MLF balance. Add government bond issuance, year-end cash injections, and liquidity in the banking system may face significant replenishment pressure.
The central bank’s choice to introduce this new tool at this time is expected to better hedge against the concentrated MLF maturities at year-end. This is also one of the main reasons the central bank chose buyout-style reverse repo instead of lengthening the term of collateralized reverse repos.
Wang Qing believes this tool is intended to hedge large MLF maturities of one year, so the operation window should extend within one year; using longer collateralized repo would keep high-liquidity assets used as collateral frozen for longer, pressuring liquidity indicators, whereas buyout-style reverse repo effectively resolves this.
Guangda Securities analyst Zhang Xu thinks this tool precisely hedges the impact of dense government bond issuance. The time lag between bond issuance and spending is clearly longer than 7 days and shorter than 1 year, and does not match the terms of OMO and MLF. If OMO hedges, there would be rolling pressure during the lag; if MLF hedges, liquidity recovery after fiscal spending must be considered. “Clearly, the best fit is buyout-style reverse repos with matched terms.”

The market authority noted that previously, central bank Governor Pan Gongsheng said at the Financial Street Forum that liquidity could be further eased by 0.25–0.5 percentage points before year-end, depending on market conditions. Launching buyout-style reverse repos now helps hedge against MLF maturities in Q4 and more effectively ensure ample liquidity at year-end, supporting stable economic growth through a favorable monetary and financial environment.

Improving liquidity management tool framework

In a context where the room for降准 (reserve requirement ratio cuts) is narrowing and MLF policy rate signaling is fading, broadening long- and medium-term liquidity injection channels has become a basic part of improving the monetary policy framework. This is the main reason the market has paid attention to the central bank’s creation of buyout-style reverse repos.

The central bank’s current liquidity tools, arranged by maturity from short to long, mainly include 7-day open market reverse repos, 1-year MLF, and long-term liquidity injections through government bond purchases and reserve cuts; the short- to mid-term liquidity tools of 1 month to 1 year are relatively lacking.

The above authorities believe that by launching buyout-style reverse repos on top of existing tools, it is expected to cover 3-month, 6-month terms, and enhance cross-term liquidity management within 1 year, further improving the refinement of liquidity management.

Wang Qing judges that this time the buyout-style reverse repo tool will help smooth the liquidity shock from large MLF maturities, keeping year-end liquidity reasonably ample, supporting economic growth momentum, while also implying that November and December will see less large-scale MLF rolls, and the policy-rate color of MLF operating rate will fade further; considering that the central bank has resumed secondary market government bond trading, MLF’s role in adjusting mid-term market liquidity may fade further, and MLF balance may gradually decline.
Ming Ming believes that when MLF maturity peaks, the central bank’s creation of the buyout-style reverse repo tool, by improving liquidity management tools, will maintain medium- to long-term liquidity stability. It is expected that buyout-style reverse repos will coordinate with government bond trading and SFISF, forming a monetary policy operation framework that further improves liquidity of all kinds of bonds.

[Forum study note | Comprehensive interpretation of “央行创设买断式逆回购新工具”]

Comrades, this news is not a technical piece about “tool upgrades,” but a signal that China’s capitalist credit system is being compelled to “reconstruct the way it injects liquidity” amid a continuing economic crisis. Here I will precisely explain its real motive, real-world effect, and class implications step by step, with minimal abstraction.

Section I: Why does the central bank “create a new tool”? A one-sentence conclusion

Not that existing tools are ineffective, but that the existing credit structure cannot sustain itself.
If the credit system were healthy:

  • 7-day reverse repos are enough
  • MLF is enough
  • Banks can borrow and re-lend among themselves
    Now this is not the case, so the central bank has to:
    → Extend maturities + broaden collateral + directly underwrite riskier assets.

This is the fundamental reason for the appearance of buyout-style reverse repos.

Section II: Why is “buyout-style reverse repo” tougher than the old tools?
The news mentions many technical differences; I translate them into plain language.

  1. What does “buyout-style” mean? — The central bank first takes the bonds off the books
    The biggest difference from past collateralized reverse repos is:
  • Collateralized: banks pledge bonds to the central bank, but the bonds still belong to the banks and can only be frozen
  • Buyout-style: the central bank directly buys the bonds onto its own accounts and will sell them back months later
    This is crucial: the central bank is not just “borrowing money” but “taking asset risk onto its own books.”

  1. Why is this important for local banks and financial institutions?
    Local banks and financial companies currently hold: local bonds, urban investment bonds, lower-rated corporate bonds, and “performing” but barely alive “bad debts.”
    These assets share a common feature: usually no one wants to hold them, and when markets tighten they become hard to sell. The central bank says the buyout-style reverse repo targets basically any bond. In plain language: give me these hard-to-move assets, I’ll give you cash.

  2. This is exactly the point to remind: the central bank is taking on bad debts
    It’s important, and the news already states it in gentle terms: “the range of repo targets is very broad,” and “credit bonds need not specify credit ratings.”
    Real meaning: the central bank begins to systematically take on riskier, more illiquid assets. This is not the first time, but this time it’s institutionalized and tool-based.

Why must the central bank do this? Because many local banks face: assets on books but cannot cash out at critical moments—government debt issuance, year-end MLF maturities, Lunar New Year cash needs, tax flows. If the central bank does not take these assets, banks may be forced to dump bonds, prices slide, credit chains break, and small banks and local financial institutions suffer first. So the central bank is now saying: better to take on risk assets ourselves than let them explode in the market.

  1. Why “multi-price bidding”? Not for marketization, but for testing the ground
    The news says: it “more truly reflects institutions’ funding needs.” In plain terms: the central bank wants to see who needs money most and by how much. In crises: the truly funding-short institutions bid higher; those not needing funds bid lower. This is not “market reform,” but a stress test for the whole financial system.

  2. Why is this linked to year-end MLF maturities and government debt issuance?
    The news reveals the crisis timeline: in Nov–Dec, large MLF maturities (1.45 trillion each) plus heavy government debt issuance, and year-end cash settling—cash demand rises. If old methods were used (short-term reverse repos), banks would have to roll weekly, risking concentrated stress. The central bank chose a tool whose terms fit reality and can absorb bad debts.

  3. Connect to “overproduction and credit crisis” (not abstract)
    Comrades must understand: the central bank is not suddenly smarter, but forced by reality. Root causes: goods cannot be sold, real estate collapses, population impoverished, consumption down, profits insufficient, debt only rolling.
    The chain is: firms borrow, local governments issue bonds, banks rely on the central bank. The credit system’s weakness is that every link can be fragile under shock. The buyout-style reverse repo solves not a “growth problem” but “don’t let the chain break at critical nodes.”

  4. The real political economy meaning (forum summary)
    The central bank creates a buyout-style reverse repo not as financial innovation, but as a rescue-style reform of the credit system under capitalism’s crisis. Its core roles:

  • Provide long-term cash to banks to avoid end-year supply disruption
  • Take bad assets from local banks and financial institutions first
  • Use state credit to substitute for an already unstable market credit
    This shows China’s capitalist economy has moved from “operating on profits” to “operating on the central bank backing credit.”
  1. One closing line (very important)
    When the central bank needs to continually invent tools to take on risk assets, back up credit chains, and smooth maturity shocks, the problem is not the tools but the system itself. This is a manifestation of a credit crisis deepening under conditions of production overhang, mass poverty, and debt rollover. This is what’s truly worth learning and warning about in this news.
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After a detailed study, it turns out that the mid-term correction (中修) only began to implement the so-called buyout-style reverse repurchase (买断式逆回购) in October 2024. In other words, the mid-term correction will directly buy out the bad debts held by local banks and financial companies, and then distribute cash to them. Therefore, another significant purpose of this policy is to recover the大量的烂账 (bad debts) held by local entities and have the central bank absorb them. How the central bank absorbs these debts ultimately involves burdening the working people again, by increasing taxes and levies to recover the costs. Essentially, the mid-term correction is a means to alleviate the economic crisis by shifting the crisis onto the people—an extremely heinous act!

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35

Is there any news or material about the increase in taxes and levies in the 中修 (Zhongxiu)? I want to see exactly what taxes have been added.

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That’s a lot, such as the recent mandatory social security contributions, and the continuous increase in social security and medical insurance payment costs.

42

I just saw a news article today:
https://view.inews.qq.com/a/20260206A01S8500
“Small restaurants’ days of ‘pretending to have low revenue’ are over,” the general content is that Zhongxiu (Zhongzhou Tax Authority) will require food delivery platforms to report data, strictly investigate tax evasion and tax leakage in the catering industry, and require various restaurants to pay back taxes. In the past, some shop owners would underreport their turnover to pay less tax, but according to the description in the news, this kind of operation space is now almost gone.

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Veo otra noticia en la que expertos en reparación central afirman que en el futuro los paquetes de tarifas bajas podrían ser eliminados gradualmente. Una noticia menciona que la razón directa es que la nueva Ley del Impuesto al Valor Agregado para reparaciones centrales aumentó la “tasa impositiva legal de servicios de telecomunicaciones básicos” del 6% al 9%.

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While discussing the issue of the credit crisis, this news appeared on Baidu’s hot search today:

2.2 million yuan in deposits mysteriously disappeared? Postal Savings Bank branch responds: Former employee privately transferred funds, unrelated to the bank
Sina Finance

2026-02-03 13:08
Sina Finance official account
Follow
Source: Financial Frontline

On February 3rd, Financial Frontline reported that recently, media reports indicated that 11 depositors in Zhalantun City, Hulunbuir, Inner Mongolia, found that their total deposits of over 2.2 million yuan at the Postal Savings Bank Zhalantun branch had “disappeared,” with the involved funds pointing to the former lobby manager Meng Mouzhi of the bank.

In response to this matter, Financial Frontline consulted the above branch, and staff stated: “This was a private transaction by (Meng Mouzhi), a personal act, unrelated to the bank, and the bank has already won the lawsuit.”

Related news: Over 2.2 million yuan vanished! Former Postal Savings Bank employee transferred and squandered deposits of 11 depositors, sentenced to 12 years

Zhongxiu is shameless. Clearly, the bank is facing a credit crisis and cannot provide money to depositors, yet it restricts depositors everywhere. Now they are shifting the blame onto the employees. Zhongxiu just wants people to think that the bank can’t provide money because of employees’ actions.

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How does the process of bank credit bankruptcy occur?
What happens if a bank’s credit fails, will all the money that working people have in the bank be directly inaccessible? But isn’t it possible for banks to keep cash circulating only within their accounts through mobile payments? Moreover, mobile payments are quite widespread in China now. After a bank’s credit bankruptcy, will all mobile payments also come to a halt and go bankrupt?

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【Explanation for Comrade jqr｜Clarifying from the fundamental chain of “loan capital—functional capital—economic crisis”】

Comrade jqr’s question is very critical,
It is essential not to interpret “credit problems” as a technical or trust issue of banks themselves, but to return to the fundamental contradictions of capitalism.

Next, I will strictly follow the logic of Marxist political economy to explain it to you again.

1. First, clarify the most fundamental relationship (this is the starting point)

You are completely correct:

Credit is the movement form of loan capital;
The interest of loan capital ultimately can only come from the surplus value created by functional capital.

Therefore, it is crucial to grasp this point:

As long as functional capital cannot smoothly realize surplus value, the movement of loan capital will inevitably encounter problems, and credit will inevitably face crises.

Bank credit is not an “independent system,”
but a derivative form parasitic on the capitalist production process.

2. What is the fundamental reason for the “bankruptcy” of bank credit? It is not the bank, but production

Let’s proceed step by step.

:one: Under normal circumstances, how does loan capital “live”?

In the “cyclical” nature of capitalism:

  • Banks lend money to enterprises (functional capital)
  • Enterprises organize production with the money
  • Exploit labor to create surplus value
  • Enterprises take part of the surplus value and pay interest to banks
  • Bank credit is thus realized

In other words:

The real basis of bank credit is the continuous and smooth extraction of surplus value by functional capital.

:two: What happens when the inherent contradictions of capitalism develop into an economic crisis?

An economic crisis is not “accidental,” but the explosion of the inherent contradictions of capitalism:

  • Socialized production
  • Private ownership of the means of production

In reality, it manifests as:

  • Large-scale commodity production
  • Suppressed purchasing power of the masses
  • Overproduction

Thus, the following occur:

  • Commodities cannot be sold
  • Capital value cannot be realized
  • Surplus value cannot be converted into money

Pay special attention to this point:

Surplus value is not “not produced,”
but produced but cannot be realized.

3. How does the economic crisis gradually transmit to “bank credit”?

This is the process you are truly concerned about.

Step 1: Functional capital cannot realize “value”

  • Enterprises produce commodities
  • But cannot sell or sell at a lower price
  • Cash inflow is interrupted

As a result:

Enterprises have assets on the books, but no cash in hand.

Step 2: Functional capital begins to delay repayment to loan capital

What will enterprises do at this point?

  • Fail to repay loans upon maturity
  • Request extension or refinancing
  • Roll over debt

In other words:

Interest is no longer paid from newly created surplus value, but maintained through debt rollover.

At this point, loan capital begins to “virtualize.”

Step 3: The “interest rights” of loan capital begin to lose their realistic basis

From a Marxist perspective, this is the true starting point of the credit crisis:

  • The interest rights still exist legally
  • But their real basis—the proliferation capacity of functional capital—has shaken

Thus:

Credit relations begin to turn into a set of “formally existing, substantively hollow” relations.

4. What does “bank credit bankruptcy” really mean? It’s not a technical collapse, but a relationship collapse

Now we can answer your core question.

The essence of “bank credit bankruptcy” is:

Loan capital discovers that it can no longer realize interest through the normal movement of functional capital.

Then, three things will happen:

:one: Loan capital begins to contract, panic, and defend

Banks do not suddenly “fail,” but respond rationally:

  • No longer dare to lend casually
  • No longer dare to interbank lend
  • Try to hold cash

This is because:

Continuing to lend out no longer corresponds to real surplus value production.

:two: Credit shifts from “expansion form” to “risk form”

During prosperity, credit is:

“I believe you can make money in the future.”

During a crisis, credit becomes:

“I worry you won’t make any money at all.”

At this point:

  • Credit interest rates rise
  • Conditions become stricter
  • Or simply refuse to lend

This is not a moral issue, but the law of value at work.

:three: The “bank credit” bankruptcy first manifests as functional failure

Note, very importantly:

Credit bankruptcy does not mean “money disappears instantly,”
but that credit relations no longer operate smoothly.

Specific manifestations include:

  • Withdrawal, transfer, and lending restrictions
  • Liquidity tension
  • Partial bank runs
  • State intervention

5. The key issues jqr cares about now: Will money be unwithdrawable? What about mobile payments?

Now, we use correct theoretical basis to answer these “practical problems.”

:one: Why might money “not be withdrawable”? It’s not because banks have no money, but because there is no surplus value support

The reason why bank liabilities (deposits) are “convertible” is based on:

The bank’s assets (loans) can ultimately be transformed into money through the proliferation of functional capital.

When functional capital generally cannot realize surplus value:

  • Assets turn into “formal assets”
  • Banks must limit cash withdrawals

Therefore:

Limiting withdrawals and transfers is essentially a defensive contraction of credit relations.

:two: Why can’t mobile payments save credit bankruptcy?

Your intuition is actually very common, but the problem is:

Mobile payments are just a “technological shell” of loan capital movement,
and do not create any new surplus value.

If:

  • Functional capital cannot proliferate
  • Loan capital cannot realize interest

Then regardless of:

  • Cash
  • Accounts
  • Digital payments

The fact of credit relation bankruptcy cannot be changed.

6. Why does the central bank keep “injecting blood”? It’s not about saving banks, but supporting the loan capital system

Now, returning to the policies we discussed earlier.

The core of the central bank’s actions is:

Using national credit to temporarily replace the private loan capital credit that has lost its real basis.

In other words:

  • The interest that should be paid by functional capital
  • Is now underwritten by the state credit

This is not a solution to the crisis, but:

Shifting the crisis from “relations among capital” to “society as a whole bearing it.”

7. Finally, a summary for jqr (very important)

It can be understood as:

Bank credit bankruptcy is not due to banks suddenly malfunctioning,
but a necessary result of the economic crisis in capitalism,
where functional capital cannot realize surplus value,
and loan capital loses its source of interest.

Therefore:

  • The problem is not “cash or mobile payments”
  • Not about “advanced or not technology”
  • But about the very mode of production of capitalism

As long as:

Overproduction + mass poverty + inability to realize surplus value

Then:

Credit crisis is inevitable and unavoidable.

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