China stocks rebound as Beijing boosts policy support

China,Trade wars,Beijing

China's attempts to increase policy support come at a time of rising external pressure due to the trade war, and as higher U.S. interest rates weigh on China's currency and constrain Beijing's ability to loosen policy to support growth.

Beijing has intensified cash flow across the financial system this year since policymakers are concerned on soothing capital outflow fears and strive for soothing pommeled markets amid the growing anxieties regarding frenzied trade war with the USA could have a damaging effect on the broader economy.

With markets shut over the past week in China, the onshore currency hasn't traded.

The People's Bank of China's move will release 1.2 trillion yuan in liquidity, with 450bn yuan of that due to offset maturing loans - meaning 750bn yuan will be injected into the financial system.

China's central bank shrugged off an interest rate hike by the U.S. Federal Reserve last month, piling even more pressure on the yuan.

The yuan fell for the sixth straight month in September as the dollar remained buoyant, suggesting Beijing may be in no rush to intervene because a weaker currency would support its exporters amid the escalating Sino-U.S. trade war.

Zhang Yi, chief economist at Zhonghai Shengrong Capital Management said the RRR cut indicates central bank's worries about the impact of "external shocks" to the markets.

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Last week, US Vice President Mike Pence intensified Washington's pressure campaign against Beijing by accusing China of "malign" efforts to undermine President Donald Trump ahead of next month's congressional elections and of reckless military actions in the South China Sea. When Chinese markets were closed last week, Hong Kong stocks fell for four consecutive days as investors grew increasingly concerned that the impact of the trade war is starting to show.

Total tax cuts for the year are expected to exceed 1.3 trillion yuan ($188 billion), according to Liu. The government has taken measures to help companies impacted by the trade war, he added.

The RRR cut will fill in the liquidity gap of banks and put no downward pressure on the yuan as the country's monetary policy is not eased, according to the PBOC statement.

To assess China's economic situation, one must take a longer view and a more holistic approach, Ning Jizhe, vice chairman of China's state planner, told the People's Daily in an interview, stressing that growth, employment, prices and global balance of payments have been stable. In a speech, USA vice-president Mike Pence said on Thursday that China's onshore stock market fell by 25% in the first nine months of the year because Washington "has been standing strong against Beijing's trade practices". July saw a rise in nationwide jobless rate to 5.1%.

Chinese commission and state council have also substituted the term "deleveraging" with "structural deleveraging", a swap indicating less stringent on debt.

"After today's announcement in the RRR cut, we expect a further cut in January 2019".

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