As China returns from its Golden Week vacation, it is not just its currency and stock market that is collapsing...

As Bloomberg reports, an indicator produced by a Beijing-based business school in the style of the closely-watched purchasing managers index plunged last month, adding to concerns about the slowing economy and raising the question of whether business conditions may be worse than official statistics show.

The index is based on a survey of CKGSB students and graduates who are executives at companies operating in China. The respondents represent around 300 privately-owned small and mid-sized enterprises across several sectors of the economy.

"Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months," Li Wei, the economics professor at CKGSB who oversees the survey, said in a commentary accompanying the September survey results. "For most, business has never been worse."

In fact, one look at the 'real' economic data in China and it is evident that it has been disappointing for the longest period since 2015...

And while it is simple to build a narrative that this collapse in China's economic data is due to Trump's trade war (or anticipation of it), as Alhambra Investment Partners' Jeffrey Snider notes, China's recent RRR cut is all about eurodollar, not Trump’s trade war.

In other words, “stepped up support” for currency means reducing the reserve assets on the PBOC’s balance sheet (or, if you like, selling UST’s). Simple accounting requires either the PBOC to offset those losses with RMB program lending (which tends to be CNY negative), or to further shrink its liability side to match. Guess which one the central bank has chosen the past two years.

The RRR cut signals that the reserve problem therefore dollar problem is anticipated to grow worse. The PBOC is actually telling us that they expect in the months ahead the same or perhaps bigger commitment to “stepped up support.” CNY doesn’t need support if there is no worsening “capital outflow” situation of retreating eurodollar funding.

This will require more monetary contraction in bank reserves than we’ve already seen. The central bank is forecasting more problems ahead.

Chinese officials are trying to get ahead of that public channel monetary deficiency by offsetting it with unlocked private (meaning state-owned) bank reserves. Bank reserve growth will shrink and even contract outright, placing enormous importance on the domestic RMB system’s ability to effective use previously stored reserves in place of what the PBOC won’t be providing.

Because the dollars just aren’t flowing to China. They didn’t last year, either, at least not directly (HK) even though CNY rose as if everything was normalizing to globally synchronized growth. Take away the Hong Kong option, what’s left for the Chinese? Or for globally synchronized growth?

Like 2015, these RRR cuts are showing us the eurodollar condition. China’s money problems aren’t really Chinese. They are money problems.