China announced supportive measures to shore up its economy and stabilize capital markets, in a move seen as bolstering Beijing’s position ahead of upcoming trade talks with the United States. Top officials from China’s central bank and financial regulators said they planned to cut interest rates, the reserve ratio for banks to release liquidity into the markets, and ramp up support for consumers and businesses affected by U.S. tariffs. The barrage of policies “slightly exceeded” market expectations, analysts said, providing a timely boost to confidence as Beijing prepared to open formal talks with Washington over a deal to de-escalate the trade war. “The global economy is full of uncertainties. The increasing economic fragmentation and rising trade tensions are disrupting global industrial and supply chains and stirring volatility in the international financial markets,” said Pan Gongsheng, Governor of the People’s Bank of China (PBOC), at the briefing.
The reserve requirement ratio (RRR) – the amount of cash that commercial banks must hold as reserves – will be cut by 0.5 percentage points, allowing an extra CNY1 trillion to flow into capital markets. China’s seven-day reverse repo rate – a benchmark interest rate – will also be lowered by 0.1 percentage points to 1.4%, while the rate of housing provident fund loans will be slashed by 0.25 percentage points. Analysts said the stimulus would help Beijing enter trade negotiations with Washington in a stronger position, the Global Times reports.
Beijing also announced several extra measures to boost consumption and support key sectors, including scrapping the reserve ratio for auto financing companies, providing an extra CNY300 billion of funding for technological innovation, and creating a CNY500 billion relending tool for service consumption and elderly care. More policies to support small businesses affected by the trade war would be rolled out as soon as possible. Meanwhile, officials said that Central Huijin – an investment entity directly controlled by the central government – had the full backing of China’s central bank to intervene to stabilize the A-share market, which has experienced a turbulent few weeks amid the trade war. The China Securities Regulatory Commission (CSRC) said it was focusing on attracting more long-term funds into the stock market.
