China orders more lending to entrepreneurs amid trade fight

Kenny Grant
October 10, 2018

On Sunday, Beijing went one step further: The People's Bank of China, the central bank, pulled a financial lever that will effectively pump $174 billion into the economy.

Sunday's move will inject a net ¥750bn in cash into the banking system by releasing a total of ¥1.2-trillion in liquidity, with ¥450bn of that to offset maturing medium-term lending facility loans.

The People's Bank of China (PBOC) decided on Sunday to cut the reserve requirement ratio (RRR) for RMB deposits by one percentage point starting from October 15, but the stance of China's monetary policy remains unchanged.

But the RRR cut did little to calm nerves when stock markets in Greater China stumbled at the start of the week's trading. China has repeatedly said it will not resort to massive stimulus.

The rally in PetroChina's shares comes at a time when a rebound in China's stocks is much needed.

China will cut the measure of trade banks must hold out save as a major aspect of endeavours to help its economy, in the midst of a heightening exchange war with the US.

With China's economy cooling and the full impact of US trade tariffs still to be felt, policy makers are shifting their priorities to reducing risks to growth, with the yuan and stock markets under pressure.

The PBOC would "maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale", it said. These banks traditionally serve the country's big state enterprises.

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The decision is meant to "further encourage the stable development of the real economy, optimise the liquidity structure of commercial banks and financial markets, lower financing costs, and to continue increasing the financial systems' efforts to support small businesses, private enterprise and innovation", the People's Bank of China said in a statement.

The Asian Development Bank says China's economy is expected to expand at a 6.6 percent annual pace this year but slow to 6.3 percent in 2019.

Despite China's flagging economy, President Trump has rejected recent Chinese calls for negotiations over the trade dispute, claiming the offers are inadequate and that it is not the right time to make a deal.

To assess China's economic situation, one must take a longer view and a more holistic approach, Ning Jizhe, vice chairman of China's state planner, told the People's Daily in an interview, stressing that growth, employment, prices and global balance of payments have been stable. Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions-such as a low unemployment rate-are pushing prices higher will keep them on the current tightening path". China has retaliated and plans for new trade talks between Beijing and Washington recently collapsed.

Small firms with no export licenses can also bundle their products with trading firms that have permits.

Foreigners dumped 9.7 billion yuan (S$1.94 billion) of A shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. This article is strictly for informational purposes only.

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