Cen­tral bank in­jects more liq­uid­ity

China Daily European Weekly - - Busi­ness - By CHEN JIA chen­jia@chi­nadaily.com.cn

China’s cen­tral bank in­jected fur­ther liq­uid­ity into the fi­nan­cial sec­tor on Sept 17, a mea­sure to ease in­vestors’ concerns about eco­nomic down­side risks in the fourth quar­ter due to un­cer­tain­ties aris­ing from es­ca­lat­ing China-US trade ten­sions, and to boost in­vest­ment.

A to­tal of 265 bil­lion yuan ($38.6 bil­lion; 33.1 bil­lion euros; £29.4 bil­lion) of funds was re­leased through the medium-term lend­ing fa­cil­ity, ac­cord­ing to the Peo­ple’s Bank of China, the cen­tral bank. Fi­nan­cial in­sti­tu­tions can bor­row the money, us­ing se­cu­ri­ties as col­lat­eral, at a 3.3 per­cent in­ter­est rate for one year.

It fol­lowed last week’s in­jec­tion of 330 bil­lion yuan into the mar­ket via re­verse re­pos, an open mar­ket op­er­a­tion. Sig­nals showed that pol­i­cy­mak­ers have changed their mon­e­tary pol­icy sta­tus in the se­cond half, as a too-tight fi­nanc­ing en­vi­ron­ment af­ter strength­ened reg­u­la­tion may hurt the mar­ket’s in­vest­ment ini­tia­tive, says ex­perts.

Some of them ex­pect a fur­ther cut in the re­serve re­quire­ment ra­tio, or the cash amount that should be de­posited in fi­nan­cial in­sti­tu­tions, may take ef­fect af­ter the US Fed­eral Re­serve’s pos­si­ble rate hike next week.

“The Au­gust ac­tiv­ity data was gen­er­ally soft, though not as weak as July’s. It will likely keep pol­i­cy­mak­ers on high alert and en­cour­age a con­tin­ued loos­en­ing bias,” says Song Yu, an economist with Beijing Gao Hua Se­cu­ri­ties Co, Gold­man Sachs’ joint ven­ture in China.

“This bias has shown its effects in the sta­bi­liza­tion of to­tal so­cial fi­nanc­ing growth in July and Au­gust, but not yet enough to off­set weaker ex­port growth and reac­cel­er­ate do­mes­tic ac­tiv­ity.”

The past weekend’s me­dia re­ports were full of dis­cus­sion on mea­sures to im­prove China’s do­mes­tic struc­tural re­forms and to ease pres­sure on the ex­ter­nal en­vi­ron­ment, when many of­fi­cials and se­nior ex­perts gath­ered in Beijing and shared var­i­ous opin­ions at a high-level fo­rum.

Some econ­o­mists ex­pressed con­cern about the faster-than-ex­pected re­treat of broad money sup­ply, or M2.

Ac­cord­ing to data from the cen­tral bank, the growth of broad money sup­ply was 8.2 per­cent in Au­gust, down from 8.5 per­cent in July, al­most back to its low­est level since 1986.

The re­cent weaker-than-ex­pected fi­nan­cial data showed gloomy de­mand and pri­vate in­vest­ment de­te­ri­o­ra­tion, said Zheng Xinli, for­mer deputy direc­tor of the Com­mu­nist Party of China Cen­tral Com­mit­tee’s Pol­icy Re­search Of­fice.

Ex­perts say the rel­a­tively vague pol­icy di­rec­tion for the com­ing months has fu­eled the mar­ket’s con­fu­sion and weak­ened in­vestors’ con­fi­dence on the coun­try’s eco­nomic out­look, es­pe­cially when un­cer­tain­ties are ris­ing amid es­ca­lat­ing trade ten­sions.

JPMor­gan’s lat­est fore­cast for the next year’s eco­nomic growth may slow to 6.2 per­cent, com­pared with this year’s 6.6 per­cent, Zhu Haibin, the US fi­nan­cial group’s chief economist in China, said on Sept 17 in Beijing.

The an­nual GDP tar­get in 2019 is likely to slip to 6 to 6.5 per­cent, com­pared with “around 6.5 per­cent” writ­ten in this year’s Gov­ern­ment Work Re­port.

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