China moves to shore up slowing growth

Kristian Rouz – The People’s Bank of China (PBoC) implemented a new round of limited monetary easing, having cut reserve requirement ratios (RRRs) for commercial banks by 0.5% down to 17% as part of a broader plan to boost economic growth and overcome the lingering slowdown and sluggish manufacturing sector.

That tightness in the money market has been blamed for denting sentiment among stock investors, who have embarked on another round of sharp selloffs since last Thursday. “Judging by the initial 2 [percent] spike in the China A50 futures (the largest 50 mainland companies, traded on the Singapore futures exchange) we should see some upside in the Chinese equity markets. But these are issues for the medium term”, said Williams.

FILE – In this February 16, 2016 file photo, a woman speaks on her phone near a display highlighting the new Chinese bank notes at a bank in Beijing, China.

“The key message over the past week is that the authorities are looking at the basket more and keeping the yuan stable to that rather than the dollar”, said Tommy Xie, a Singapore-based economist at OCBC.

“The market still behaves like it closes at 4:30 p.m.”, said a dealer at another European bank, adding that his bank recently decided its night trader would end his shift at 9:30 p.m.

“This move will guide the smooth and moderate growth of credit supply and create a good monetary environment for structural reform”, the People’s Bank of China (PBOC) said in a statement. “It needs further reforms to unlock productivity growth”.

In late October a year ago, Communist Party’s central committee had a policy meeting where it aimed to double the GDP and income within a decade from 2010. “Monetary easing is obviously continuing as the economy is still weak”.

The central bank said it pumped 230 billion yuan (US$35 billion) into the financial system on Monday to ease tight liquidity, bringing total fund injections over the past week to more than 1.0 trillion yuan, according to state media.

Beijing had previously announced a 100 billion yuan fund to help retrain laid off workers.

The economic situation has exacerbated over past few months, following the substantial capital outflow, triggered by the currency devaluation.

The PBOC has already worked hard to support the economy of the Asian giant, at a time when its stall growth drivers: since late 2014, it lowered by six times its interest rates to lower the cost of credit and reduced repeatedly the reserve requirements imposed on banks.

In December and into early January, the Chinese renminbi, also known as the yuan, came under relentless pressure as money flowed out, and the central bank had to use its war chest of dollars to keep the slide from turning into a rout.