The Chinese government took significant steps on Wednesday to quell market panic and restore investor confidence, as concerns about the stock market crash and worries about China’s economic outlook continue to grow.
Analysts expect further support measures to follow the People’s Bank of China’s announcement that it will reduce the amount of cash commercial banks must hold in reserves starting February 5.
The 50 basis point cut in reserve requirement ratio (RRR) is expected to inject 1 trillion yuan (US$140 billion) of liquidity into the market, Governor Ban Gongsheng told a press conference in Beijing.
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“The People’s Bank of China will strengthen the countercyclical and intercyclical adjustment of monetary policy instruments, strive to stabilize markets and confidence, and strengthen and strengthen the positive recovery of the economy,” Ban said.
“We will create a favorable monetary and financial environment for the operation of financial markets, including capital markets,” he said.
On Wednesday, Chinese state-run newspapers doubled down on calls for financial security and quality development.
Finance is the bloodline of the national economy and an important part of a country’s core competitiveness.
The decline in market confidence has raised questions about whether the Chinese government can achieve a solid economic recovery this year. It also threatens President Xi Jinping’s ambitions to build China into a financial superpower.
“Finance is the lifeblood of the national economy and an important part of the nation’s core competitiveness,” the People’s Daily, the mouthpiece of the ruling Communist Party, wrote in a front-page article.
The articles made no mention of bailouts, but consistently cited President Xi’s instructions to step up financial support for the real economy, technological innovation, and financial security.
The state-run Economic Daily also stated that financial stability is the basis for high-quality economic development.
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“Economy is the body and finance is the blood. The two coexist and prosper together,” said the commentary published Wednesday.
Earlier this week, the Chinese government had already made moves to improve market sentiment, with Premier Li Qiang pledging more support for capital markets at Monday’s State Council meeting.
The China Securities Regulatory Commission said on Tuesday it would bring in more institutional investors with long-term holdings and avoid policy announcements that could hurt market expectations.
The People’s Bank of China also announced that the re-lending and re-discount rate for bank loans designated for small and medium-sized enterprises and agricultural enterprises will be lowered by 25 basis points to 1.75 percent, effective from Thursday.
If consumption and the real estate market are weaker than expected after the Chinese New Year, interest rates could be cut.
” [RRR] “While this move is helpful, restoring confidence may take more time and may require fine-tuning the regulatory environment beyond traditional fiscal and monetary stimulus,” said Natixis, senior Asia-Pacific thematic research. said economist Gary Ng.
“If consumption and the real estate market are weaker than expected after the Chinese New Year, interest rates may be cut,” he said.
Hong Kong’s Hang Seng index widened its recent rise from 2% to about 4% after Governor Pan announced the rate cut. It ended up closing 3.56% higher on Wednesday.
Meanwhile, the benchmark Shanghai Composite Index closed up 1.8% on Wednesday.