Published: Fri, October 12, 2018
Finance | By Jaime Brady

China injects $110 billion in wake of trade war with US

China injects $110 billion in wake of trade war with US

A net 750 billion-yuan ($109.2 billion) will be injected in cash into the banking system as Sunday's move will release a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of the total to counterbalance medium-term lending facility (MLF) loans.

On Sunday, the People's Bank of China announced a 100-basis-point cut to lenders' reserve requirement ratio (RRR), stepping up efforts to pump more liquidity into markets and support the domestic economy.

However, the decline also threatens to damage the Chinese economy by encouraging capital to flow out of the world's second-largest economy, increasing borrowing costs at a time when communist leaders are trying to shore up cooling growth.

Chinese corporates are still working to lower their debt levels following Beijing's 4 trillion yuan (£436.2 billion) stimulus package a decade ago.

China's stocks fell sharply today despite Beijing's weekend announcement that it will slash the level of cash that banks must hold as reserves, a sign of underlying investor anxiety over a heated Sino-US trade war.

At the same time, the greenback continues to draw strength from the strong United States economic growth and continued tightening policy there.

The views in the newspaper, which is run by the ruling Communist Party's official People's Daily, do not necessarily reflect Chinese government policy. In June, the gap was more than 70 bps, and traders say any further narrowing could increase capital outflows from China.

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The RRR cut will cover the yuan deposits of large commercial banks, share-holding commercial banks, city commercial banks, non-county rural commercial banks and foreign banks. These banks traditionally serve the country's big state enterprises.

"China's economy is under heavy downward pressure. and you need time to observe if recent easing measures are effective or not", he added.

Tourism spending by domestic travellers in the first four days of the National Day holiday, which ended on Sunday, rose just 8.1% from previous year, which is much less than the 21% growth recorded in 2017, according to figures from the China Tourism Academy.

"Some of the difficulties encountered by enterprises are brought about by trade frictions and some due to China's economic transformation", Ning said.

China's IT sector fell sharply today, tumbling over 3.4 per cent in early trading.

Small firms with no export licenses can also bundle their products with trading firms that have permits. Instead, policy initiatives would likely shift focus to tax cuts and fiscal spending to stimulate growth.

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. This article is strictly for informational purposes only. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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