Chinese shares sold off yesterday, more than 4% at one stage in the wake of last week’s holidays, more trade war tough talk from the US and the move by the Chinese central bank on Sunday night to pump more money into the economy via the fourth relaxation of banks’ reserve ratios this year.
The weakness in China and the rest of Asia saw the ASX 200 shed 85 points, or 1.4% yesterday, with the added negative impact of a weak session on Wall Street on Friday night as US bond yields rose and shares dropped.
Sunday night’s announcement from the People’s Bank of China didn’t help confidence.
The CSI 300 index of major companies listed in Shanghai and Shenzhen was off 4% its biggest one-day decline since June and its third worst fall in 2018.
All market segments were down on the CSI 300 but technology stocks took the biggest battering, slumping 5% on the realisation that this sector is being especially targeted by the US, along with stories of spy chips being inserted into computer motherboards for US products such as servers.
The Shanghai Composite was off 3.7% while the Shenzhen composite fell 3.8%.
In Hong Kong, the Hang Seng China Enterprises index of major Chinese blue chips listed in the city fell more than 1% while the broader Hang Seng index dropped 1.3%.
The moves came after the People’s Bank of China cut banks’ reserve requirement ratios over the weekend in a move to free up Rmb750 billion ($US109 billion) of capital for banks to start lending from next Monday.
The easing is part of a growing effort by regulators and the government to ease concerns about slowing economic growth and the impact of a trade war with the US.
It also followed a week-long holiday in China, during which Chinese hardware makers listed in Hong Kong posted sharp falls in the wake of that Bloomberg report claiming China implanted a tiny chip in servers compromising technology supplied to US technology giants and Washington’s intelligence services.
Hours after Sunday night’s easing report, Xinhua news agency reported Finance Minister Liu Kun as saying that China would also adopt a more proactive fiscal policy, including potential tax cuts on a larger scale, to safeguard economic growth.
Total tax cuts for the year are expected to exceed 1.3 trillion yuan (over $US200 billion), according to the Xinhua report.
“Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact”, Liu was quoted as saying. The government has taken measures to help companies impacted by the trade war, he added.
The central bank said on Sunday it would continue to take necessary measures to stabilize market expectations while maintaining a prudent and neutral monetary policy.
The PBOC would “maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale”, it said.
The RRR cut would not create depreciation pressure on the yuan, the PBOC said, adding it would keep the foreign exchange markets stable. The exchange rate weakened by around half a percent yesterday in guarded trading.
China’s yuan currency has fallen 8% in the face of strong selling pressure between March and August but it has since cut losses as authorities stepped up support.
