Stay informed with free updates
Just sign up for china economy myFT Digest — delivered straight to your inbox.
The People’s Bank of China plans to reduce the amount of reserves banks must maintain next month, part of efforts to boost growth as investors gloom over the outlook for the world’s second-largest economy. It is.
A 0.5 percentage point cut in the People’s Bank of China’s reserve requirement ratio, announced by People’s Bank of China Governor Ban Gongsheng on Wednesday, will inject 1 trillion yuan ($140 billion) of liquidity into the financial system.
At a press conference in Beijing, Pan promised to support growth this year through “countercyclical” adjustments, saying the central bank “will create a favorable monetary and financial environment for the economy.””.
The governor also predicted that pressure on China’s exchange rate would ease in 2024 if market expectations that the U.S. Federal Reserve would start cutting interest rates come true.
Mr. Ban’s comments come after Chinese stocks have fallen sharply this month on investor concerns about the outlook for economic growth and corporate profits, although he also said China’s economy is recovering and financial markets are stable. That’s what it means.
Chinese authorities have tightened restrictions on capital outflows as part of efforts to stem a prolonged selloff, but investors remain skeptical of the government’s desire to revive an economy whose growth rate has fallen to a 10-year low. is.
A snapshot of the interactive graphic is shown. This is most likely because you are offline or have JavaScript disabled in your browser.
Fang Fenglei, founder of Hopu Investments and a prominent Chinese dealmaker, said at the Asian Financial Forum in Hong Kong that the People’s Bank of China’s reserve requirement cut was “good news” but that it would “boost the capital market.” ” he said he was not sure.
“Most importantly, interest rates are still very high, so interest rates should also be lowered,” Huang said through an interpreter, adding that high interest rates “depress consumption.”
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the reserve reduction was a “step in the right direction” but called on the government to direct more funds to consumption rather than industry.
“As China faces deflationary pressures, it is important to allocate fiscal resources to consumption rather than investment. China needs stronger domestic demand, not expanded production capacity,” he said.
“Now that China’s economy is recovering, there is more room for maneuver in terms of macro policy,” Ban told reporters.
“The capital market has a solid foundation for steady development,” he said, citing a meeting led by Chinese Premier Li Qiang this week in which the country’s second-largest executive called for efforts to boost investor confidence. There is,” he said.
Pan vowed to “stabilize the market and strengthen confidence and recovery momentum.”
Ban said the People’s Bank has more “room” to make policy decisions this year, as high U.S. interest rates have put selling pressure on the Chinese currency and the yuan has depreciated by about 5% against the dollar over the past year. That’s what I expected.
“The misalignment between China and the US monetary policy cycle is expected to improve, which will facilitate the stabilization and convergence of the China-US interest rate differential,” Pan said.
Pointing to deflationary pressures in the economy, Pan said that when inflation rates in the US and the euro area suddenly fell from levels of around 10% to 3%, this caught central banks around the world by surprise and affected prices in China. said. .
“The inflation rate in developed countries has probably fallen from the 10th floor to the 3rd floor, but China’s inflation rate has fallen from the 2nd floor to the 1st floor,” Pan said.
However, he acknowledged that there are also domestic factors behind China’s slump in prices. Economists say the gross domestic product (GDP) deflator, a broad measure of prices in an economy, is in its longest period of deflation since the late 1990s.
“Domestically, due to a lack of effective demand, overcapacity in some industries, weak social expectations, and low price levels, [the consumer price index] The growth rate in 2023 was 0.2%, which was significantly lower than the previous year,” Pan said. CPI rose by 2% in 2022.
However, Pan added that “international organizations such as the IMF and other institutions predict a gradual recovery in China’s price level in 2024.” The IMF expects China’s CPI to rise 1.7% year-on-year in 2024 and GDP to grow 4.2%, up from 5.2% growth last year.