China slashes banks' reserve requirements as trade war imperils growth

China slashes banks' reserve requirements as trade war imperils growth

China slashes banks' reserve requirements as trade war imperils growth

"Timing wise, it suggests policymakers wish to stabilise the market sentiment given the recent stress in financial markets and rising growth concerns as US-China trade tension further escalate".

Zhang Yi, chief economist at Zhonghai Shengrong Capital Management, said the cut suggested the central bank was anxious about the impact of "external shocks" to markets such as the one delivered last week by US Vice President Mike Pence's criticism of Beijing.

The three core stock indexes on the mainland, the Shanghai Composite, Shenzhen Component and Growth Enterprise Market benchmarks declined 3.72 percent, 4.05 percent and 4.09 percent. If they do, they're surely to face some backlash from Trump and it's another signal that the trade war is still far from over. For the year, both Chinese indexes are down about 18 per cent.

The surge in PetroChina has temporarily held in check a sell-off that sent the Shanghai Composite down by 3.7 per cent on Monday for its biggest loss in nearly four months.

Telecoms equipment maker ZTE led tech shares downward on Monday, falling 8.14% to 16.81 yuan after a Bloomberg News report last week said China had inserted special microchips into computer goods exported to the USA to steal technology secrets.

On Friday, Chinese technology stocks listed in Hong Kong slumped on a Bloomberg report that the systems of multiple USA companies had been compromised by malicious computer chips inserted by Chinese spies.

MSCI's gauge of stocks across the globe.MIWD00000PUS fell percent, its biggest single-day fall since February.

It will inject a net 750 billion yuan (S$150 billion) in cash into the banking system with the cut by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility (MLF) loans. "Liquidity is not the issue".

Analysts say the yuan's decline has been driven mostly by China's slowing economic growth and the divergence between US and Chinese interest rates.

Deputy Chief Economist at the China Center for International Economic Exchanges, Xu Hongcai stated that this "very timely" RRR cut is enough to boost up confidence in the economy.

Yields on the 10-year U.S. Treasury note were at seven-year highs after a solid report last week raised the likelihood of faster interest rate hikes. Before trading began on Monday, the PBOC set the midpoint of the yuan's daily trading band at 6.8957 per dollar, its weakest level since May 11, 2017. The onshore traded renminbi was 6.8814 per dollar by the end of September, having weakened by 5.4 percent compared with its value at the beginning of this year, according to data from the central bank.

On Monday, the yuan sank to a 22-month low of 6.93 to the dollar, making one yuan worth about 14.4 cents.

Shares in Asia stumbled in early trade on Monday as investors waited with bated breath as China's markets prepare to reopen following a week-long holiday and after its central bank cut banks' reserve requirements in a bid to support growth.

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