Thursday, 18 October, 2018

China orders more lending to entrepreneurs amid trade spat

China pumps USD 109 billion into economy as trade war bites on growth Image Courtesy Reuters
Orlando Vargas | 10 October, 2018, 20:29

Amid signs higher U.S. interest rates and fears of a global trade war are having an impact on the world's second-largest economy, China's central bank hopes cutting the reserve requirement ratios (RRRs) by 1% from 15 October will lower financing costs and spur growth.

The reserve requirement cut, the fourth by the People's Bank of China (PBOC) this year, comes as Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.

China's central bank will cut the reserve requirement ratios (RRR) by one per cent from October 15 which will inject a net Dollars 109.2 billion in cash into the banking system.

Washington and Beijing have imposed punitive tariffs of up to 25 percent on billions of dollars of each other's goods in an escalating fight over US complaints China steals or pressures companies to hand over technology.

RMB 450 billion of the cash released will be used to offset maturing medium-term lending facility loans.

In a speech, United States vice-president Mike Pence said on Thursday that China's onshore stock market fell by 25% in the first nine months of the year because Washington "has been standing strong against Beijing's trade practices".

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.

China's foreign-currency holdings fell in September, as heightened trade tensions with the USA fueled concerns of capital outflow and further yuan depreciation. Some market participants also said they were unwilling to hold large positions for their proprietary trade, amid global market uncertainty, during China's coming lengthy public holiday. Chinese dealers were playing catch-up with sharp losses last week, when Bloomberg reported that Beijing inserted microchips into equipment made in China for Amazon and Apple, and possibly for other companies and government agencies.

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Lenovo was 1.6 percent lower in Hong Kong on Monday, and ZTE fell 2.5 percent. It has even censored bad economic news.

The cut is equivalent to an injection of 750 billion yuan ($109 billion) in cash into the financial market.

China has struck back with its very own arrangement of taxes and has blamed the U.S. for propelling the biggest exchange war in monetary history.

The central bank is trying to make the yuan more market-oriented and flexible but has intervened when the currency threatened to slide too far.

"The RRR cut announced today sends a clear easing signal", Bank of America Merrill Lynch said in a research note.

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 move comes as officials have warned that trade frictions with the United States could shave as much as almost one percentage point from China's annual economic growth. However, some key activities have abated more steeply.

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