China has released US$108 billion in liquidity to boost its economy ahead of a potential trade war with the United States.
China is stocking up its war chest for a potential trade war with the United States.
China’s central bank said on Sunday it would cut the amount of cash that some banks must hold as reserves by 50 basis points (bps), releasing US$108 billion in liquidity, to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.
The reserve reduction, the third by the central bank this year, had been widely anticipated by investors amid concerns over market liquidity and a potential economic drag from a trade dispute with the United States.
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Tensions have been mounting amid a steady stream of tough talk from U. S. President Donald Trump, who has refused to back down on a series of threats issued in recent months.
Trump has ordered 25 per cent tariffs on $50 billion in Chinese goods in response to Beijing’s forced transfer of U. S. technology and alleged intellectual property theft, and threatened to impose duties on $400 billion more in Chinese products.
“We have the great brain power in Silicon Valley, and China and others steal those secrets,” Trump said on Fox & Friends earlier this month.
All told, the scope of the tariffs would be equivalent to 90 per cent of the goods that China shipped to the United States last year.
Trump’s order of 25 per cent tariffs, which are set to take effect July 6, was quickly matched by Beijing on U. S. goods exported to China.
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Trump has also touched off separate trade disputes with Canada and the European Union over tariffs on steel and aluminum.
The 700 billion yuan ($107.65 billion) in liquidity that the Chinese central bank said will result from the reduction in reserves was bigger than expected.
Expectations of a cut had risen after the State Council, or cabinet, said last week monetary policy tools including targeted cuts in banks’ reserve requirement ratios will be deployed to strengthen credit flows to small firms and keep economic growth in a reasonable range.
Economists are not ruling out further reserve requirement reductions for the rest of the year as borrowing costs rise due to Beijing’s clamp-down on leverage in the financial system, a campaign now in its third year, while uncertainty over Sino-U. S. trade ties persists.
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The People’s Bank of China (PBOC) said on Sunday that the latest targeted cut in some banks’ reserve requirement ratios (RRRs) – currently 16 per cent for large banks and 14 per cent for smaller banks – will take effect on July 5.
The PBOC said the cut will release about 500 billion yuan ($77 billion) for the country’s five large state banks and 12 national joint-stock commercial banks. Lenders are encouraged to use the money to conduct debt-for-equity swaps.
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China’s policymakers have been pushing for debt-for-equity swaps since late 2016 to ease pressure on firms struggling with their debts.
The country’s top banks, controlled by the government, have rushed to sign deals with state-owned enterprises to ease their debt burden and give them time to turn around their business and improve their creditworthiness.
