Publicado: Jue, Octubre 11, 2018
Financiera | Por Marilu Caballero

China orders more lending to entrepreneurs amid trade spat

China orders more lending to entrepreneurs amid trade spat

China's stock markets tumbled on Monday, as investors were unnerved by the central bank's decision to slash the amount of cash that the country's lenders must hold as reserves, in a bid to help spur economic growth.

The move will be used to pay down 450 billion yuan ($65.6 billion) of medium-term lending facilities, it said, adding that it could also free up another 750 billion yuan in funds.

The People's Bank of China (PBoC) has cut the reserve requirement ratio (RRR) for most banks by 100bps, effective from October 15. The nation's equity market had already lost US$2.4 trillion in value since January before Monday, amid signs that deleveraging and a trade spat with the U.S. is hurting economic growth.

The announcement of the relaxing the RRR requirement for the banks, which are also saddled with the huge local government debt of United States dollars 2.58 trillion comes amid deepening trade war with US and raising of the interest rates by US Federal Reserve, intensifying the pressure on capital outflows.

Friday's US non-farm payrolls showed job creation slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes. Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions-such as a low unemployment rate-are pushing prices higher will keep them on the current tightening path".

Total tax cuts for the year are expected to exceed 1.3-trillion yuan (US$189-billion), according to Mr. Liu.

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Chinese Minister Liu Kun stated, "Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact". Cheung added that China's central bank has "successfully" anchored yuan expectations following a slew of market stabilizing measures since August.

On Monday the State Council, China's cabinet, said it will increase export tax rebates from November 1 and will speed up export tax rebate payments in a new bid to boost the real economy and support trade growth.

"China sectors such as energy, IT and industrials will be most impacted based on our analysis, while sectors such as real estate, insurance, diversified financials, telecom and utilities generate virtually no revenue from the U.S.", a team led by Pedro Martins said in a note.

The move comes as officials have warned that trade frictions with the United States could shave as much as almost one percentage point from China's annual economic growth. However, some key activities have abated more steeply. July saw a rise in nationwide jobless rate to 5.1%.

China's banking regulator has asked banks to significantly lower funding costs for smaller firms and raise their tolerance for non-performing ratios for loans to small and micro firms.

Chinese commission and state council have also substituted the term "deleveraging" with "structural deleveraging", a swap indicating less stringent on debt. "The key question is how to channel cash to the real economy", said Zhang Yiping, senior economist at Merchants Securities in Shenzhen. "The external environment is becoming tougher and we can not rule out further RRR cuts".

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