China's central bank injects 100b yuan into market

China's central bank on Sunday pumped cash into the banking system via reverse repos to maintain liquidity.

The People's Bank of China injected 100 billion yuan (about 14.17 billion U.S. dollars) into the market through seven-day reverse repos at an interest rate of 2.2 percent, according to a statement on the website of the central bank.

The move is intended to maintain stable liquidity in the banking system, the central bank said.

As 120 billion yuan of reverse repos matured Sunday, the operation led to a net withdrawal of 20 billion yuan from the market. A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

China will pursue a prudent monetary policy in a more flexible and appropriate way, according to this year's government work report. The country will use a variety of tools including required reserve ratio reductions, interest rate cuts, and re-lending to enable M2 money supply and aggregate financing to grow at notably higher rates than last year, said the report. Enditem

China's securities regulator plans to grant investment banking licenses to commercial lenders as part of efforts to breed industry behemoths in the face of fiercer foreign competition, business magazine Caixin reported.

A pilot scheme could involve at least two of China's largest banks getting the green light from the China Securities Regulatory Commission (CSRC) to conduct investment banking business on the mainland, according to Caixin.

The Industrial and Commercial Bank of China, the country's top lender, submitted a plan to CSRC in late 2018 seeking to set up a securities unit with registered capital of 100 billion yuan, Caixin reported.

In contrast, Chinese brokerage giant Citic Securities has registered capital of 13 billion yuan. ICBC declined to comment. CSRC didn't return an emailed request for comment. Regulators' desire to break the wall between commercial and investment banking was fueled by mounting competition from foreign players, according to Caixin.

China scrapped foreign ownership caps in the brokerage business earlier this year as part efforts to fully open its $40 trillion financial industry. Global investment banks including Morgan Stanley, Goldman Sachs and Credit Suisse have won regulatory approval for majority stakes in their Chinese ventures.

Currently, investment banking is offlimits to most Chinese banks, though Bank of China and China Development Bank control brokerage businesses onshore under special arrangements by the government.

In addition, many Chinese banks, including ICBC, China Construction Bank (CCB) and Bank of Communications (BoCom), operate investment banking through their Hong Kong subsidiaries.

China's US$40 trillion banking system is seeing growing signs of trouble at its grass roots with bank runs happening at two small local lenders last week, a sign that a mountain of debt and an unprecedented economic contraction has started to take a toll. Local governments and police in both Baoding city in Hebei province and Yangquan, a coal mine town in Shanxi province, last week pleaded with customers not to withdraw cash from local banks despite various unsubstantiated rumours.

The city of Baoding said on its official

WeChat account that Baoding Bank was operating normally and people "should not believe in or spread rumours … and should jointly be safeguarding good financial and social order" after a group of depositors rushed to withdraw money from the bank.

Local police issued a statement saying it had arrested two individuals for spreading rumours that led to "panic among the public".

The government and police in Yangquan were forced to issue a statement after local depositors rushed to Yangquan Commercial Bank.