China frees up $70bn to boost economy

China said it will cut the amount of cash banks must hold as reserves for the second time this year, freeing up some 500 billion yuan ($69.8 billion) in long-term liquidity to prop up the faltering economy as Covid-19 19 reach all-time highs.

The People’s Bank of China (PBOC) detailed that it will reduce the required reserve ratio for banks by 25 basis points, effective December 5. According to the central bank, this will reduce the weighted average ratio of financial institutions to 7.8 percent.

The cut will help maintain reasonably sufficient liquidity and promote a constant fall in global financing costs, while helping to stabilize the slowdown in the economy,” the entity reported.

The PBOC walks a tightrope on policy, trying to prop up the slowing economy but keen to avoid deep interest rate cuts that could fuel inflationary pressures and the risk of outflows from China, while the Federal Reserve and other central banks Rates are raised to combat inflation.

“The reduction will help banks follow a directive to defer loan repayments from companies fighting increasing confinement restrictions (…) But few companies or households are willing to commit to new loans in this uncertain environment”, wrote in a note, Mark Williams, chief Asia economist at Capital Economics.

The cut follows a much-anticipated 25 basis point cut in April, after state media last week quoted the cabinet as saying China will use timely reserve ratio cuts, along with other monetary policy tools. , to maintain reasonably ample liquidity.

The PBOC added that it will step up its prudent monetary policy and focus on supporting the real economy, while trying to avoid a flood-type stimulus.

The world’s second largest economy suffered a broad slowdown in October and the recent rebound in Covid-19 cases has deepened concerns about growth in the last quarter of the year. The economy was already under pressure from problems in the real estate sector and weakening global demand for Chinese goods.

industrial profits fall

According to data from China’s National Bureau of Statistics, industrial profits fell 3.0% from January to November 2022 from a year earlier. The figure compares with a 2.3% drop from January to September.

Profits fell in 22 of China’s 41 major industrial sectors.

“The recent outbreaks of Covid-19 in the country occur frequently, the risk of a global economic downturn intensifies, and industrial companies face increased pressure,” the office listed in a statement.

The negative data from the world’s second largest economy also reflects a debt payment crisis in the country’s real estate sector and a sharp slowdown in consumer spending.

Manufacturers’ profits fell 13.4% in the first 10 months, slightly below the 13.2% decline during the January-September period.