<story><title>China&apos;s Zombie Economy</title><url>https://newleftreview.org/sidecar/posts/zombie-economy</url></story><parent_chain><item><author>jimbursch1</author><text>“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ”&lt;p&gt;Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?</text></item></parent_chain><comment><author>yafbum</author><text>My understanding: business A sells USD 1,000 worth of goods abroad.&lt;p&gt;Customer wires USD 1,000 to bank B to the account of business A as payment for the goods.&lt;p&gt;This money does not go directly to the account of business A.&lt;p&gt;Bank B sends USD 1,000 to Central bank and gets RMB 7,000 (or whatever the exchange rate is) which go to the account of business A.&lt;p&gt;Bank B ends up with deposits almost entirely in RMB to loan out. Few customers outside China really want those.&lt;p&gt;Compare with a situation in which bank B kept its USD on the books as customer deposits. Then it would have USD to loan out, and the market for such loans is much bigger.</text></comment>
<story><title>China&apos;s Zombie Economy</title><url>https://newleftreview.org/sidecar/posts/zombie-economy</url></story><parent_chain><item><author>jimbursch1</author><text>“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ”&lt;p&gt;Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?</text></item></parent_chain><comment><author>throwaway290</author><text>If it&amp;#x27;s like Russia, maybe you  get paid in bucks but you pretty much must convert them all to RMB immediately. So the bank needs to create all that RMB for all the exporters. Part of it circles  back in taxes and stuff. Assuming exporters can&amp;#x27;t or don&amp;#x27;t want to spend all that RMB immediately there&amp;#x27;s now a bunch of RMB in country in some shape or form. A lot probably in banks.</text></comment>