The People's Bank of China (PBOC) decided on Sunday to cut the reserve requirement ratio (RRR) for RMB deposits by one percentage point starting from October 15, but the stance of China's monetary policy remains unchanged.
The report further stated that the RRR now stands at 15.5 per cent for large institutions and 13.5 per cent for smaller banks, and will be cut by 100 basis points from October 15, the central bank said. "As the possibility increases that trade frictions could escalate into political and military confrontation, global investors are more likely to avoid the risks (of Chinese shares)", Guangzhou-based Wanlong Securities Consultation Co said in a research note.
China's yuan currency has faced strong selling pressure this year, losing over 8 per cent between March and August at the height of market worries, though it has since cut losses as authorities stepped up support.
The dispute with the U.S.is adding to downward pressure on an economy that already was forecast to cool after Beijing tightened lending controls to rein in a debt boom. There is room for further reductions and I expect another 1 percentage point cut by the year-end,"Mr. Xu added". When Chinese markets were closed last week, Hong Kong stocks fell for four consecutive days as investors grew increasingly concerned that the impact of the trade war is starting to show.
Total tax cuts for the year are expected to exceed 1.3-trillion yuan (US$189-billion), according to Mr. Liu.
But China has bigger problems than the trade war. He also assured that the government has implemented measures to help the companies affected by the trade war.
China is heightening its efforts to strengthen its flagging economy by injecting it with money to combat the effects of a trade war with the US.
Beijing has increasingly geared its policies toward supporting exporters and persuading banks to offer more loans to small and medium-sized firms, which account for the bulk of the country's jobs, by lowering banks' RRRs.
"In the face of rising trade frictions, moderate yuan depreciation aids exporters and is what the market expects to see", Tang Xiangbin, currency analyst at China Minsheng Banking Corp said, predicting additional USA rate hikes would help strengthen the dollar further.
Tourism spending by domestic travellers in the first four days of the National Day holiday, which ended on Sunday, rose just 8.1% from a year ago, which is much less than the 21% growth recorded in 2017, according to figures from the China Tourism Academy.
US Vice President Mike Pence last week accused China of aggressive trade and other policies and said Beijing was bent on interfering in upcoming US elections. However, some key activities have abated more steeply. July saw a rise in nationwide jobless rate to 5.1%.
"Liquidity is flush in the banking system".
It is likely that further RRR cuts in addition to fiscal stimulus are in the pipeline to cushion the slowdown in the economy.