China frees up $70b for banks to underpin slowing economy

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China said it would cut the amount of cash that banks must hold as reserves for the second time this year, releasing about 500 billion yuan ($69.8 billion) in long-term liquidity to prop up the faltering economy.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio for banks by 25 basis points (bps), effective from Dec. 5. That would lower the weighted average ratio for financial institutions to 7.8 per cent, the central bank said.

The cut, which follows a 25-bp reduction in April, had been widely expected after state media on Wednesday quoted the cabinet as saying China would use timely reserve ratio cuts, alongside other monetary policy tools, to keep liquidity reasonably ample.

The PBOC has been walking a tightrope on policy, seeking to support the slowing economy but eager to avoid big rate cuts that could fuel inflationary pressures and risk outflows from China, as the Federal Reserve and other central banks raise interest rates to fight inflation.

The world’s second-largest economy suffered a broad slowdown in October and a recent spike in COVID-19 cases has deepened concerns about growth in the last quarter of 2022. The economy was already under pressure from a property downturn and weakening global demand for Chinese goods. On Monday, the central bank kept its benchmark lending rates unchanged for a third straight month, as a weaker yuan and persistent capital outflows limited Beijing’s ability to ease monetary conditions to support the economy.

The government has in recent months rolled out a flurry of policy measures to support growth, focusing on infrastructure spending and limited support for consumers, while loosening financing curbs to rescue the property sector.

On Wednesday, the PBOC issued a notice outlining 16 steps to support the property sector, including loan repayment extensions, in a major push to ease a liquidity crunch that has plagued the sector since mid-2020.

Chinese cities have imposed lockdowns and other curbs to rein in a renewed rise in coronavirus cases, darkening the economic outlook and dampening hopes that China would significantly ease its harsh, outlier stance on COVID anytime soon.

The economy grew just 3 per cent in the first three quarters of this year, well below the annual target of around 5.5 per cent. Full-year growth is widely expected by analysts to be just over 3 per cent.

Meanwhile China’s central bank said on Friday it would cut the amount of cash that banks must hold as reserves for the second time this year, releasing about 500 billion yuan ($69.8 billion) in long-term liquidity to bolster the slowing economy.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for banks by 25 basis points (bps), effective from Dec.5. That follows a 25-bp cut for all banks in April.

The world’s second-largest economy suffered a broad slowdown in October and a recent spike in COVID-19 cases has deepened concerns about its growth in the last quarter of 2022, amid a property downturn and weakening global demand for Chinese goods.

Bank of China Ltd announced Friday that it had agreed to provide credit lines totaling more than 600 billion yuan ($83.8 billion) to 10 property developers, including Vanke and Country Garden. The move came as China’s state-owned banks took efforts to respond to Beijing’s call to ease a liquidity crisis in the embattled property sector.

China stocks rose on Friday, boosted by property developers after the country’s latest measures to support the beleaguered sector, while Hong Kong shares were dragged down by tech firms as China reported record-high new daily COVID-19 cases.

The blue-chip CSI 300 Index rose 0.5 per cent at close, while the Shanghai Composite Index added 0.4 per cent.

However, Hong Kong’s Hang Seng Index finished down 0.5 per cent, while the Hang Seng China Enterprises Index declined 0.4 per cent.

China’s biggest commercial banks have pledged at least $162 billion in fresh credit to property developers, bolstering recent regulatory measures rolled out to ease a stifling cash crunch in the sector and lifting property shares.

Meanwhile, sources told Reuters that China’s central bank will offer cheap loans to financial firms for buying bonds issued by property developers, the strongest policy support yet for the crisis-hit sector.

Chinese real estate developers jumped 6.8 per cent, and banks gained 2.3 per cent. Hong Kong-listed mainland property developers surged 4.5 per cent.

Shares of Chinese state-owned enterprises (SOEs) also shone, as investors heed regulators’ call to build a market valuation system “with Chinese characteristics.”

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