China Seeks to Stimulate Economy

Cornelia Mascio
Ottobre 10, 2018

Beijing has intensified cash flow across the financial system this year since policymakers are concerned on soothing capital outflow fears and strive for soothing pommeled markets amid the growing anxieties regarding frenzied trade war with the US could have a damaging effect on the broader economy.

The yuan was also down, as expectations of more easing measures by China, plus surging U.S. bond yields, exert downward pressure on the Chinese currency.

At the same time, China is facing growing capital outflow pressure as the US Federal Reserve is raising interest rates. The Shanghai Composite Index lost 3.0 per cent, to 2,738.04 points at the end of the morning session.

The ongoing trade war with the USA has exerted great pressure on Chinese exports as rounds of retaliatory tariffs undercut China's price advantage.

The RRR cut, announced on the last day of China's week-long national day holiday, indicates that the central bank is anxious about the impact of "external shocks" to markets such as a speech last week by USA vice-president Mike Pence, said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

The People's Bank of China (PBoC) has cut the reserve requirement ratio (RRR) for most banks by 100bps, effective from October 15.

U.S. Vice President, Mike Pence in his speech last week increased Washington's pressure crusade against Beijing on Thursday by hinting malign Chinese efforts to emasculate Donald Trump before congressional elections that are about to take place next month.

On the same day, the above-mentioned banks will use the funds released by the RRR cut to repay the medium-term loan facilities of the central bank where they borrowed.

China has retaliated with its own set of tariffs, and has accused the USA of launching the largest trade war in economic history. "The issue is the loss of confidence", said Zhao, adding China is in a "liquidity trap" where there's a shortage of credit demand from the real economy, especially the private sector. Prior to Wednesday's market opening, the PBOC set the yuan's midpoint rate at 6.8571 per dollar, the weakest level since August 24, and 131 pips or 0.19 percent weaker than the previous fix of 6.8440. That compares with the 3.227 per cent yield for USA bonds., the highest level since May, 2011.

The spot market opened at 6.9000 per dollar and was changing hands at 6.8979 at midday, 254 pips away from the previous late session close and 0.03 per cent away from the midpoint.

"This is a sign of policy easing to counter (the effects of) the US-China trade war and shows (Beijing's) determination to maintain growth", said Liao Qun, chief economist of China Citic Bank International. That was the biggest drop in nearly a month and led to the redback's lowest dollar value since May past year. Markets in Japan are closed for a holiday.

Altre relazioniGrafFiotech

Discuti questo articolo

Segui i nostri GIORNALE