As US tariffs UU Pican, China moves again to stimulate its economy
As US tariffs UU Pican, China moves again to stimulate its economy
BEIJING: China's central bank is releasing nearly $ 175 billion for commercial banks to increase their loans and pay for short-term loans, Beijing's latest effort to boost growth in a slowing economy as its struggle increases commercial with the United States.
In a statement issued on Sunday, the People's Bank of China said it would reduce the amount of reserves that most commercial banks must maintain by one percentage point, starting on October 15.
The movement occurs as the United States has imposed. tariffs on $ 250 billion of Chinese products and has promised additional import taxes to $ 257 billion of products.
Chinese leaders are eager to get ahead of any potential economic impact of the trade dispute and increase confidence in a rising stock market, economists say. Shares in Shanghai have plunged around 15% since the beginning of the year, while the yuan has weakened by more than 9% against the US dollar since mid-April.
The central bank said the cut will release 1.2 trillion yuan (174.72 billion dollars) in total. Of that, 450 billion yuan ($ 65.520 million) will be for banks to pay short-term debt that expires this month and 750 million yuan will be released to the financial market. The major Chinese banks will face a reserve requirement ratio of 14.5%, compared to the current 15.5%.
The cut in the proportion of reserve requirements, which came after a week's vacation in the Chinese mainland, was widely expected. Chinese leaders have already reduced banks' reserve requirements rates three times this year, and have implemented tax measures such as reducing individual income taxes and urging local governments to boost spending on infrastructure.
"In the current situation of the trade war, they do not want to be seen with a weak economy," Ding Shuang, an economist at
Said of the intentions of the political leaders. "They are very serious with the goal of growth this year."
The last round of US tariffs. At $ 200 billion of Chinese products came into effect last month. At the beginning of next year, the Trump administration plans Increase tariffs on these products to 25%. of 10% currently.
The punitive measures are already taking a toll on the Chinese manufacturing. The private manufacturers of automobiles, machinery and other products stopped expanding in September due to the fall in export orders, while the production of large state-owned manufacturers continued to weaken.
Economists also expect US tariffs on Chinese products to weigh on China's export sector for next year. Last month, Fitch Ratings reduced its growth forecast for China in 2019 by 0.2 percentage points to 6.1%, citing concerns about trade tensions with the US. UU
Beijing's efforts to keep the economy growing carry risks. Analysts say the latest movement of relaxation will likely exert pressure on a Chinese yuan that is already depreciating. A weaker currency would help Chinese exporters who are already hurt by the trade struggle, but too much depreciation may raise concerns about the Chinese economy and capital outflows.
On Sunday, the central bank released data showing that reserves in foreign currency fell to their lowest levels in September in more than a year. The bank has moved to shore up the yuan, including by reintroducing a mechanism to establish the official daily value of the currency against the dollar.
Policy makers have the option of continuing to support the currency, including by strengthening capital controls, wrote Zhang Ming, an analyst with the Chinese Academy of Social Sciences of the state committee of experts, wrote in a note after the PBOC clipping. It is unlikely that the yuan will weaken beyond 7 per dollar, he added.
Economists say they believe that a major stimulus package similar to that used by Beijing after the 2008 financial crisis is unlikely because this year's growth is still on course to reach the government's target of around 6.5%.
Too many risks of policy easing undo the progress that the authorities have made in controlling high levels of debt. Easy access to credit for much of the last decade has led to Chinese debt to more than 240% of GDP at the end of 2017; the efforts made during the last two years to control the debt have slowed down the leverage within the financial system, but not in the economy in general.
To further complicate Beijing's efforts to shore up the economy are concerns over rising consumer prices, in part driven by a recent outbreak of African swine fever that caused Shortage of pork, as well as the increase in rental prices in many Chinese cities.
Specific measures in recent years have not alleviated the funding pressures for small and medium-sized private companies, since banks consider that smaller companies are riskier and prefer loans to state-owned companies. Economists expect policymakers to reveal greater flexibility through fiscal measures and, possibly, more cuts in banks' reserve requirements ratios. "The intention is to switch to a neutral policy with a relaxation bias," said Mr. Ding of Standard Chartered.
The central bank has so far refrained from raising interest rates after the Federal Reserve. It raised its reference rate in September.. The highest rates in the US UU They tend to strengthen the dollar, which puts stress on the currencies of emerging markets.
Chinese policymakers have so far avoided cutting the benchmark rate, as investors would see this as a more drastic easing measure than the reduction in banks' reserve requirements ratios. Such a move runs the risk of putting even more pressure on the yuan and further diluting Beijing's efforts to control the debt.
-Grace Zhu and Lingling Wei contributed to this article.
Write to Chao Deng in Chao.Deng@wsj.com
Corrections and Amplifications
Last month, Fitch Ratings reduced its growth forecast for China 2019 by 0.2 percentage points to 6.1%. An earlier version of this article incorrectly stated that Fitch reduced its forecast by 0.2%. (October 8th)
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