China yesterday became the latest country to embrace economic stimulus measures, as its central bank reportedly agreed to lend 100 billion renminbi apiece, or US$16.2 billion, to each of the country’s five main banks.
The decision to inject a total of US$81 billion into the banking system came as the Chinese economy, like many economies in Europe, seemed to slow somewhat over the summer, while still expanding faster than most countries around the world.
Industrial production, retail sales, imports and foreign direct investment have all slackened in China, even as exports are booming.
Stock markets in much of Asia surged yesterday morning in response to the action by the central bank, the People’s Bank of China.
The policy shift was first reported by Chinese Web site Sina.com (新浪網), and two Chinese financiers said it appeared to be true, although neither had yet spoken directly to central bank leaders about the issue. The central bank had no immediate comment.
“I think it’s believable; the economy seems to need stimulus,” one of the financiers said.
Both insisted on anonymity because they were not authorized to discuss government actions.
Asian markets mostly rose yesterday, with Hong Kong and Shanghai boosted by the stimulus injection reports.
However, Tokyo gave up early gains to finish 0.14 percent lower.
China’s five biggest banks, which account for at least three-fifths of the market by various measures, are the Industrial and Commercial Bank of China (中國工商銀行), China Construction Bank (中國建設銀行), Agricultural Bank of China (中國農民銀行), Bank of China (中國銀行) and Bank of Communications (交通銀行).
The five banks will receive the funds in equal amounts over three months through the central bank’s so-called Standing Lending Facility, a tool it uses to manage short-term liquidity, Sina and analysts said.
The report follows a string of weak data for last month, including a five-year low for industrial output growth and a surprise drop in imports, which have put in peril the government’s target of 7.5 percent annual economic expansion for this year.
“Such a move highlights the fact that China’s policymakers are sensitive to the significant weakening seen in the August activity data and the move would be in line with our call that monetary policy will be eased further to boost the economy,” Nomura said in a research note.
The Chinese action comes a day before the European Central Bank begins a program to provide banks with extremely low-rate loans, provided the banks promptly relend the money in the private sector. The European plan also bars banks from lending the money to households for home purchases.
Because the central bank gets to decide in three months whether to extend the loans or call them in, the measure is more limited than, for example, reducing the percentage of a bank’s assets that it must keep as reserves, Western economists said.
Economists at JPMorgan calculated the extra loans would have the same short-term effect as cutting that requirement, called the reserve ratio, by half a percentage point.
Additional reporting by AFP
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