China is on the verge of change: for the first time in history, the central bank has suspended temporary purchases of government bonds.

What does it mean?

This is the very tool that central banks use to inject liquidity into the system to support the market. And now China has stopped doing that.

At a time when the economy is already plunging into deflation, such a move looks unexpected.

What's happening?

Firstly, it is a signal of tightening.

The Central Bank of China (PBoC) is removing liquidity from the market. This may increase deflationary risks. And deflation is a slowdown in the economy, a decrease in demand and the danger of a chain reaction when companies and households postpone spending, expecting even more price cuts.

Secondly, it is a step against the national debt.

China may be trying to contain the growth of the debt burden in order to avoid “overheating". But this approach increases the pressure on the bond market, where yields can rise sharply without the support of the central bank.

Thirdly, it is an attempt to rely on reforms.

Instead of pouring money into the economy, China seems to want to channel resources into the real sector. This is a long-term strategy, but it creates a lot of pressure in the short term.

And what does this mean for the world?

1. Economies that depend on China will feel the impact. China's slowdown will hit exports, commodity markets, and trading partners.

2. Financial markets will become more volatile. Less stimulus from China means more uncertainty.

3. Investors will start looking for protection. Against this background, gold, the dollar, and even bitcoin can strengthen their positions.

China is showing us how difficult it is to balance between a long-term strategy and short-term stability.

Their actions are an attempt to reform the system, but the risks to the global economy remain.

The market is waiting for a reaction. And this is not only a matter of time, but also of scale.