China central bank moves to pump extra US$110bn into economy

China pumps USD 109 billion into economy as trade war bites on growth

In an attempt to shore off potential issues at home, China will cut the amount of cash banks must hold in reserve as part of its efforts to support its economy.

The cut will "fill in the liquidity gap of banks" without easing monetary policy and putting downward pressure on China's currency, the yuan, the 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.

The three core stock indexes on the mainland, the Shanghai Composite, Shenzhen Component and Growth Enterprise Market benchmarks declined 3.72 percent, 4.05 percent and 4.09 percent. The tech-heavy ChiNext board fell 3.08 percent. Still, tariffs could hurt the economy the longer they last.

"We've been expecting for some time now the USA market to start delivering volatility".

The move comes as officials have warned that trade frictions with the United States could shave as much as almost one percentage point from China's annual economic growth.

Telecoms equipment maker ZTE led tech shares downward on Monday, falling 8.14% to 16.81 yuan after a Bloomberg News report last week said China had inserted special microchips into computer goods exported to the U.S. to steal technology secrets.

Hong Kong's Hang Seng slumped 4.4 per cent last week as investors anxious about the escalating trade row between the United States and China. China's yuan was weaker at 6.8979 per US dollar at 0333 GMT, compared with a previous onshore close of 6.8725 per dollar. In the spot market, the onshore spot yuan opened at 6.8718 per dollar and was changing hands at 6.8703 at midday, 93 pips weaker than the previous late session close and 0.19 percent softer than the midpoint.

The offshore yuan was also weaker at 6.9050 per dollar. Some analysts now expect a cut in the official policy interest rate to bring interbank lending rates down.

Equity markets around the world came under pressure last week after a steep sell-off in U.S. Treasuries, prompted by hawkish comments from U.S. American officials worry they might erode USA industrial leadership.

At the same time, China is facing growing capital outflow pressure as the US Federal Reserve is raising interest rates.

The central bank is trying to make the yuan more market-oriented and flexible but has intervened when the currency threatened to slide too far.

On Monday, the yuan sank to a 22-month low of 6.93 to the dollar, making one yuan worth about 14.4 cents.

Oil prices fell more than 1 percent after the USA said it may grant waivers to sanctions against Iran's oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran. That prompted suggestions Beijing might weaken the currency to help exporters that face punitive USA tariffs of up to 25 percent. That would represent a decline of another 1 percent from Monday's level.

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