Chinese banking stocks and copper jumped on reports the central bank has injected cash into the country’s biggest lenders, in a move to bolster the economy and calm investor fears that growth is slowing more than expected.
The People’s Bank of China will pump 100 billion yuan ($18 billion) into each of the five biggest banks for a three-month period, according to Bloomberg and articles in a number of Chinese and Western media outlets.
The reports haven’t been officially confirmed but they were plausible enough to provide a 1.4 per cent boost on Wednesday to the Hong Kong listed stocks of Industrial & Commercial Bank of China and Agricultural Bank of China, two of the five lenders said to have received the capital injections.
Copper rose 0.4 per cent in Asian trade, the yuan also picked up after a four-day slide, while the Shanghai Composite Index was down 0.3 per cent in afternoon trade on Wednesday after initially rising as much as 0.5 per cent.
Goldman Sachs’ Beijing-based analyst Song Yu described the injection as “the first clear policy response to weak August data” and predicted it was the first step of several.
Mr Yu likened the overall amount of 500 billion yuan to a 50 basis point cut in the required reserve ratio (RRR) for the whole banking system.
“Such an easing would be consistent with our expectation that monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus,” he said in an investor note.
Other possible stimulus measures to follow were front-loading of fiscal expenditure – close to 20 per cent of fiscal outlays occur in the last month of the year – and more pressure on government agencies and local authorities to maintain investment growth momentum, he said.
AMP chief economist Shane Oliver said the liquidity injection was a much-needed initiative.
“It is good news in the sense the Chinese authorities are responding to the growth slowdown and they are seeking to ensure it comes in on target,” Mr Oliver told Fairfax Media.
Mr Oliver said the banks were probably given the money on the proviso they lent it out in an attempt to boost demand for residential property, where prices have been declining for months.
The dropping prices have caused global concerns about the Chinese economy, as the residential property market is a key driver of growth that contributed 15 per cent of gross domestic product in 2013.
“This is a significant stimulus but the authorities will need to do more to stop the property slow down becoming a collapse,” Mr Oliver said, adding the banks would ultimately need to cut interest rates.
Westpac’s senior international economist Huw McKay told Fairfax Media the property market would need to at least stabilise before concerns could be completely appeased.
“Over the last three months, we’ve seen quite violent shifts in investor confidence and a lot of people have been speaking about the last few months of economic data as a downswing rather than a soft patch,” Mr McKay said.
Mr McKay said this was likely the first step in several to strengthen the economy, and that steps such as opening up the markets and supplementary measures were more likely than interest rate cuts.
“The economy is weak and needs support. This step enables us to expect about a recovery in the economy but it won’t manifest in next months data, it’ll take at least six to nine months,” Mr McKay said.