China cuts new benchmark rate to boost economy

BEIJING - China on Wednesday cut interest rates in a bid to shore up the world's number two economy as cooling domestic demand and a bruising trade spat with the United States hit growth.

The reduction in the loan prime rate (LPR) -- one of the preferential rates commercial banks impose on their best customers and which serves as a reference for other lending rates -- was widely expected after disappointing economic data in October.

The one-year LPR was lowered to 4.15 percent from 4.20 percent in October, the People's Bank of China (PBoC) said in a statement.

The five-year LPR -- on which many lenders base their mortgage rates -- was also lowered to 4.8 percent from 4.85 percent. 

The PBoC announced in August a plan to better reflect market changes with a new benchmark lending rate. The LPR, released on the 20th day of every month, is based on rates of the central bank's open market operations, especially medium-term lending facility rates.

The LPR cut is the latest in a series of measures used to reduce borrowing costs as China attempts to free up funds for credit-starved parts of the economy. 

Beijing is struggling to kickstart the economy, which expanded at its lowest pace for nearly three decades in the third quarter, battered by the US trade war, falling global demand for its goods and government battles against debt.

The PBoC on Monday trimmed the seven-day reverse repurchase rate to 2.50 percent from 2.55 percent, encouraging commercial banks to lend more to small and medium-sized companies.

However, cutting the LPR will have a "small" impact on the economy since it will "not lower the interest rate on the bulk of outstanding loans that are still linked to the PBoC's traditional lending rate", said Julian Evans-Pritchard at Capital Economics.

The decline in the five-year LPR "hints at a possible softening" of restrictions on property buying put in place to mitigate price bubbles, he wrote in a research note. 

source: news.abs-cbn.com

China cuts reserve requirement after renewed trade tensions

BEIJING -- China's central bank said on Monday it would cut reserve requirement ratios (RRRs) to release about 280 billion yuan ($41 billion) for some small and medium-sized banks, in a targeted move to support companies struggling from an economic slowdown.

The amount of cash released by the latest cut would be one of the smallest from any of the RRR cuts since January 2018.

The cut, while widely expected at some point, was announced right before China's stock market opened, and just hours after US President Donald Trump sharply escalated trade tensions between the world's two largest economies.

The People's Bank of China (PBOC) said in a statement that the reduction would come into effect on May 15. The funds will be used for loans to small and private companies.

The central bank said it would cut the RRR for about 1,000 rural commercial banks operating in counties to 8 percent, equal to the RRR for smaller rural credit cooperatives.

The move will help lower funding costs for small and micro firms, the PBOC said.

Small and medium-sized banks currently have RRRs ranging from 10 percent to 11.5 percent.

The PBOC has cut the RRR 5 times in the past year, lowering the ratio to 13.5 percent for big banks and 11.5 percent for small-to medium-sized lenders.

Previous policy announcements usually fell on non-trading times after the market closed, analysts from Citic Securities noted, making the timing of this announcement intriguing.

Just hours earlier, Trump issued a series tweets in which he complained that trade talks with China were proceeding "too slowly", and that he would raise tariffs on $200 billion of goods to 25 percent on Friday from 10 percent.

His comments upended markets that had been enjoying a period of calm thanks to signs of robust growth in China and the United States, and from previous comments from Trump and other senior US officials that trade talks were going well.

Some analysts believed the PBOC was seeking to reassure investors unnerved by Trump's latest comments.

"I think it is a move to calm the market, to offset the impact from the trade talks, telling you that 'I can give some stimulus during the most difficult times, but I will not give too much'," said Zhou Hao, analyst at Commerzbank in Singapore, adding that the PBOC's targeted cut showed Beijing's resolve to keep its debt level in check.

Despite the policy boost, China's major stock indexes still extended losses after opening sharply lower. Both the blue-chip CSI300 index and the Shanghai Composite Index tumbled more than 5 percent in late morning trading. Hong Kong's Hang Seng index slumped more than 3 percent.

China's currency, the yuan, dropped to 6.7980 to the dollar in early trade, its weakest level in 3-1/2 months while the 10-year treasury futures, opened up 0.41 percent.

"Beijing has been sounding less dovish over the past two weeks. We believe a worsening of the trade conflict between the US and China will evoke another dovish turn by Beijing, especially on its monetary easing stance," Ting Lu, chief China economist at Nomura in Hong Kong, wrote in a note.

Economists had expected further targeted cuts on the RRR this year as Beijing seeks to underpin growth. The State Council, or cabinet, said on April 17 that a policy framework would be set up to implement relatively low RRRs for small- and medium-sized banks.

The PBOC is likely to cut RRRs for small banks to encourage more lending to small and private firms - which are vital for economic growth and job creation - policy insiders told Reuters previously, who pencilled in at least one such "targeted" RRR cut this year.

Commerzbank's Zhou said the PBOC announcement showed Beijing has made preparations in the event that the trade talks fail.

"I think the market had underestimated China's determination to deleverage, while overestimating China's willingness to reach a trade agreement," he said.

China's Vice Premier Liu He, who was scheduled to meet US officials in Washington for further trade talks this week, is "very unlikely" to go after Trump's tariff "threat", editor-in-chief of China's Global Times newspaper said on Monday.

source: news.abs-cbn.com

China seen to post solid 1Q growth as debt risks loom

BEIJING - China is expected to report on Monday that its economy grew 6.8 percent in the first quarter, well above Beijing's full-year target, buoyed by surging government infrastructure spending and a gravity-defying property market that is showing signs of overheating.

A strong reading could help wobbly global financial markets but add to worries that China's government is still relying too heavily on old growth engines like stimulus and not doing enough to tackle risks from an explosive build-up in debt.

Though policymakers have pledged repeatedly to push reforms to head off financial risks and asset bubbles, the government is seeking to keep the world's second-largest economy on an even keel ahead of a major leadership transition later this year.

Beijing has set a slightly more modest growth target of around 6.5 percent for this year, theoretically offering more wiggle room for reforms after the economy grew 6.7 percent in 2016 - the weakest pace in 26 years.

Most economists polled by Reuters expect the economy expanded 6.8 percent in the first quarter from a year earlier, the same pace as in the fourth quarter of 2016. On a quarter-on-quarter basis, it likely grew 1.6 percent in January-March from the previous three-month period.

Economists at ANZ reckon growth may even clock in at 6.9 percent in the quarter, pointing to strong property and infrastructure investment.

"The announcement in early April of the construction of the Xiongan new economic zone, which requires massive infrastructure spending, suggests Chinese authorities are likely to rely more on investment to stabilize growth in the next few years," ANZ said in a note.

China's long-ailing industrial sector has been posting its best profits in years, thanks to higher prices for steel and other building materials, giving "smokestack" industries more cash flow to pay off debt and invest in more efficient plants.

China's export outlook also brightened considerably on Thursday as it reported forecast-beating trade growth and as US President Donald Trump softened his anti-China rhetoric in an abrupt policy shift, though the risk of US protectionist trade action is by no means off the table.

Still, many analysts expect economic growth to cool later this year as the impact of earlier stimulus measures starts to fade and as local authorities resort to ever-tougher measures in a bid to get soaring home prices under control.

ACCUMULATED PROPERTY CURBS

Most analysts don't see a price crash, but believe the accumulated weight of property curbs will eventually translate into weaker sales, construction and investment.

China imported the most iron ore on record in the first quarter, but iron ore and steel futures prices are nosediving on fears that its steel production is outweighing demand.

Beijing also is continuing to rely heavily on new credit to generate growth as productivity slows, despite worries about debt risks.

China's banks extended the third highest loans on record in the first quarter, though March lending was less than expected.

At the same time, China's central bank has shifted to a tightening bias, and is using more targeted measures to contain risks in the financial system, after years of ultra-loose settings.

MORE RATE INCREASES?

The People's Bank of China (PBOC) has raised short-term interest rates several times already this year, while boosting its regulatory oversight.

Analysts predict further modest rate increases this year, but do not expect a full-blown policy rate hike as authorities fear tapping the brakes too hard would stunt economic growth.

The Organisation for Economic Co-operation and Development (OECD) says China's total private and public debt has exceeded 250 percent of GDP, up from 150 percent before the global financial crisis.

"While the authorities obviously recognize the risks, credit has continued to expand at a pace that looks unsustainable," analysts at Barclays said.

"Although this does not necessarily equate to the risk of an imminent crisis, the apparent plan to 'kick the can down the road', at least past the Party Congress, means that problems left to fester may become more difficult to resolve."

source: news.abs-cbn.com

China's central bank increases its power in battle to curb risks

BEIJING - China's central bank has been quietly boosting its policy independence and regulatory reach as it seeks to contain risks to the financial system, policy insiders said, to help ensure stability ahead of a five-yearly leadership team transition this year.

By greater use of market mechanisms to adjust interest rates instead of changing the official benchmark rates, which need political approval, the People's Bank of China has assumed more targeted, timely and effective control of its principal policy objective - to calibrate the cost of capital in the economy.

And by broadening the scope of the tools it uses to assess and limit the accumulation of risky assets in the banking system, it has expanded its oversight powers without getting embroiled in the kind of bureaucratic infighting that has beset plans to create a financial super-regulator.

That has given the PBOC room to manoeuvre at a time when it needs to contain speculative bubbles and risky lending while avoiding abrupt tightening measures that could hurt the economy.

"China faces big systemic risks, and 2017 is a crucial year for controlling such risks," said a policy adviser.

"The central bank has been expanding its regulatory functions and it's taking an over-riding role (on risk controls)."

The PBOC is likely to guide market interest rates higher using reverse repurchase agreements (repos), and its standing lending facility (SLF) and medium-term lending facility (MLF), while keeping benchmark interest rates steady, policy advisers said. That will allow it to fine-tune borrowing costs without using the blunt instrument of benchmark rates, which could hurt the heavily indebted corporate sector.

"China's economic fundamentals are slowly improving, but there could be problems if we tighten policy too quickly," a second policy adviser said.

The central bank raised short-term interest rates on March 16 in what economists said was a bid to stave off capital outflows and keep the yuan currency stable after the Federal Reserve had raised U.S. rates.

That followed increases in its repo rates and the SLF on Feb. 3, and a rise in rates on the MLF in late January.

Its recent changes to interest rates have been announced during market trading, including just hours after the Fed raised rates.

In contrast, previous changes in official benchmark lending and deposit rates, which needed cabinet approval, often came in the evening or at weekends.

China's central bank still has much less autonomy than Western peers, so it doesn't have the final word on adjusting official interest rates or the value of the yuan. The basic course of monetary and currency policy is set by the cabinet or by the Communist Party's ruling Politburo.

The PBOC did not return requests for comment.

TWIN PILLARS

Under long-serving Governor Zhou Xiaochuan, the PBOC has been a driver of the reform agenda, with a long-term goal to make banks' borrowing costs more market driven to improve resource allocation and wean the economy off its reliance on state-led investment.

Reuters reported in 2015 that China was considering bringing together its banking, insurance and securities regulators into a single super-commission, following a stock market crash that was blamed in part on poor inter-agency coordination.

But policymakers and the different bureaucracies have yet to reach a consensus on how to proceed with a regulatory overhaul.

"Such an overhaul is unlikely to happen soon because it concerns interests, personnel arrangements and relationships between different departments," said another policy adviser.

Chen Yulu, a central bank vice-governor, told a forum last month that the PBOC is trying to establish a "twin-pillar framework of monetary policy plus macro-prudential policy".

The central bank's macro-prudential assessment (MPA) is a formal evaluation that assigns a score to each bank based on parameters believed to include asset quality, capital adequacy, the proportion of liquid assets and stability of funding.

The MPA was launched last year and, while not publicly disclosed, the PBOC has widened the risk-assessment framework to include off-balance-sheet wealth management products (WMPs) in the first-quarter report, sources at commercial banks said, in line with the central bank's announcement in December.

"To control financial risks, we cannot have a fragmented regulatory system under which different agencies do their own things," said a source at a major commercial bank.

"Letting the central bank take the lead is most suitable, given that it's tasked to oversee money supply, liquidity, and control systemic risks."

WMPs, often linked to shadow banking, have seen explosive growth in recent years, with funds channelled into stock and bond markets.

"It's necessary for the PBOC to take on more regulatory functions under its MPA because there are many hidden risks that could pose a threat to China's financial stability," said the second policy adviser.

The official Shanghai Securities News reported last month that mortgages could also be included in the MPA this year. Home mortgages accounted for nearly 40 percent of China's record new loans of 12.65 trillion yuan ($1.8 trillion) last year.

The Organisation for Economic Co-operation and Development (OECD) says China's total private and public debt has grown to more than 250 percent of GDP, up from 150 percent before the global financial crisis. ($1 = 6.8979 Chinese yuan renminbi)

(Reporting by Kevin Yao; Editing by Will Waterman)

source: news.abs-cbn.com

Asian shares in for worst week in 4 years on panic over China

TOKYO - Asian shares are on course to post their biggest weekly fall in more than four years as investors dumped risk assets on fears over China's economy and its turbulent financial markets.

China announced late on Thursday it suspended its new stock market circuit breaker introduced only on Monday as the system failed to reduce market volatility, with some market players even saying it backfired.

The People's Bank of China (PBOC) also wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar.

The action was somewhat ironic since it was the PBOC that triggered the slide early Thursday by fixing the yuan at a much lower rate than many expected.

That left dealers at a loss to know what the central bank might do at Friday's fixing.

"The sharp drop has led to speculation that China is letting go of the reins on the CNY (yuan), or perhaps targeting faster depreciation to reach an 'equilibrium' level," wrote analysts at Barclays, while conceding that no one was really sure.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, extending this week's loss to 7.4 percent, which would be its biggest fall since September 2011.

Japan's Nikkei .N225, which is in its worst start of year in 20 years, fell 1 percent to a three-month low and is likely to post its biggest weekly fall since March 2011.

"There is lots of negative news from China, North Korea and indeed almost all of the emerging markets... After last year's good performance we were bound to see a pull-back. Companies will remain cautious in their outlook when they present Oct – Dec 2015 earnings," said Hannah Cunliffe, senior portfolio manager at Union Investment in Frankfurt.

"The Nikkei will trade below its 2015 high for most of this year," she said.

The picture is similarly gloomy on Wall Street, with the S&P 500 losing 2.4 percent on Thursday, with 40 percent of the stocks in the benchmark trading 20 percent or more off of their highs, the definition of a bear market.

After the U.S. market close, two Apple suppliers added to growing worries about slowing shipments of iPhone 6S and 6S Plus by cutting their revenue estimates for the third quarter.

That news put fresh pressure on many Apple suppliers in Asia, although the immediate focus is on the Chinese yuan and Chinese shares.

In commodities Brent crude LCOc1 settled down 48 cents at $33.75 on Thursday, after sliding to a low of $32.16, a level last seen in April 2004.

A plunge in oil revenues is seen hurting many oil producing countries such as Saudi Arabia.

In a sign of Riyadh's dire fiscal position, Saudi Arabian deputy crown prince Mohammed bin Salman told The Economist magazine it is considering whether to sell shares in state oil giant Saudi Aramco.

With risk appetite severely hurt, investors are flocking to low-risk assets such as bonds, gold and traditional safe-haven currencies.

The 10-year U.S. Treasuries yield fell to a 2 1/2-month low of 2.119 percent on Thursday and last stood at 2.156 percent.

Gold rose to a two-month high of $1,113.2 XAU=, a gain of 4.9 percent so far this year.

The yen stood near Thursday's 4 1/2-month high of 117.33 yen, last trading at 117.64 yen. The euro was little changed at $1.0917.

The Australian dollar, often used as a liquid proxy for China trade, licked wounds at $0.7016, having fallen to a three-month low of $0.6981, which represented a 4.2 percent fall from the end of last year.

source: www.abs-cbnnews.com

China stocks trading halted after rout

SHANGHAI - China accelerated the devaluation of the yuan on Thursday, sending currencies across the region reeling and domestic stock markets tumbling, as investors feared the Asian giant was kicking off a virtual trade war against its competitors.

Trading on China's stock markets were suspended for the rest of the day, for the second time this week, as a new circuit-breaking mechanism was tripped less than half an hour after the open.

The People's Bank of China again surprised markets by setting the official midpoint rate on the currency at 6.5646 yuan per dollar, the lowest since March 2011.

That was 0.5 percent weaker than the day before and the biggest daily drop since last August, when an abrupt near 2 percent devaluation of the currency also roiled markets.

The impact was immediate as regional currencies went into a tailspin. The Australian dollar, often used as a liquid proxy for the yuan, fell half a U.S. cent in a blink.

Shanghai stocks slid 7 percent to trigger the halt in trading, a repeat performance of Monday's sudden tumble. Japan's Nikkei shed 1.8 percent in sympathy.

A sustained depreciation in the yuan puts pressure on other Asian countries to devalue their currencies to stay competitive with China's massive export machine.

It also makes commodities denominated in U.S. dollars more expensive for Chinese buyers, which could hurt demand and thus further depress commodity prices in a vicious chain reaction.

source: www.abs-cbnnews.com

China mulls allowing individuals to invest more abroad

SHANGHAI - China is considering relaxing limits to allow individuals to invest overseas in stocks and property, the central bank said, which would potentially unleash a flood of money if the government loosens strict capital controls.

The country keeps a tight grip on outflows of funds due to worries capital flight could disrupt the economy and weaken its control.

The People's Bank of China said it was studying letting "qualified" individuals invest abroad in industry, property and financial products through the Shanghai Free Trade Zone, according to a statement released Friday.

"These policy initiatives are another important step toward complete capital account liberalisation," Zhou Hao, a senior economist at Commerzbank in Singapore, was quoted by Bloomberg News as saying.

China's premier free trade zone in the commercial hub Shanghai was set up in 2013 with the promise of a range of financial reforms, but foreign investors especially have expressed disappointment over the pace of change.

Chinese citizens are now only allowed to convert the equivalent of $50,000 from the domestic yuan currency under an annual quota, state media said, which creates a limit on overseas investment though many evade the barrier.

Individuals are allowed to legally invest in stocks in Hong Kong, a special administrative region of China, through a special link with accounts on the Shanghai stock exchange.

The central bank announcement, which gave no timetable for the move, followed a top-level Communist Party meeting which discussed the country's development plans for the next five years.

China also wants the yuan to join the International Monetary Fund's "special drawing rights" basket of currencies and is pursuing reforms to help gain the coveted status.

In August, the central bank suddenly devalued the yuan, allowing it to lose nearly five percent of its value over a week, in a move which raised alarm over the state of the world's second largest economy.

source: www.abs-cbnnews.com

China stock market freezing up as sell-off gathers pace

SHANGHAI - China's tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and indexes plunged after the securities regulator warned of "panic sentiment" gripping investors.

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent, while the Shanghai Composite Index dropped 5.9 percent.

With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilization funds earlier in the week bore the brunt.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilize the real economy is now a bigger risk than the crisis in Greece.

"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."

Commodities markets reflected growing concerns about the broader health of the world's second largest economy, with copper prices falling to a six-year low, Shanghai nickel futures sliding by their 5 percent daily limit, and oil falling toward $56 a barrel, near a three month-low.

TRADING HALTS

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market or roughly $2.4 trillion worth of stock - as companies scuttled to sit out the carnage.

With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a modest 0.8 percent.

The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth.

Beijing's interventionist response has also raised questions about its ability to enact the market liberalization steps that are a centerpiece of its economic reform agenda.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages, though that sum is only 40 percent of the amount of leveraged positions that investors have cut since June 18.

RETAIL INVESTORS

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.

"It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly," said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

"It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional."

A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" have done little to calm investors.

The barrage of official commentary and new support measures continued throughout Wednesday's trading session, without visible effect.

Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.

Government agencies also announced that insurers would be allowed to by more blue chips and urged major shareholders and top executives to buy their own shares.

But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities.

Hong Kong's Hang Seng Index fell 5.8 percent, with shares of Chinese brokerages taking a heavy beating.

"Investors are extremely unimpressed with their sudden conscription into national service, and you can see that in their share prices," said Matthew Smith, a strategist who covers the China financials sector for Macquarie.

source: www.abs-cbnnews.com

China stocks nosedive as regulator warns of 'panic'

SHANGHAI - Chinese stocks dived on Wednesday, as the country's securities regulator warned investors were in the grip of "panic sentiment" and the market showed signs of freezing up as companies scrambled to escape the rout by having their shares suspended.

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 4.8 percent in morning trade, while the Shanghai Composite Index dropped 3.9 percent. Both indexes had plunged around 8 percent at the market open.

Around 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilize the real economy is now looming as a bigger risk than the euro zone crisis.

"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market - as companies scuttled to sit out the carnage.

With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a relatively modest 1.5 percent.

SOURING BOOM

The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth in the world's second largest economy.

Beijing's interventionist response has also raised questions about its ability to enact the market liberalization steps that are a centerpiece of its economic reform agenda.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.

"It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly," said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

"It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional."

A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" have done little to calm investors.

The barrage of official commentary and new support measures continued on Wednesday.

Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.

The state asset administrator told central-government-owned firms they should not sell shares in their own listed companies and should buy more stock in companies they controlled to stabilize prices.

And China's insurance regulator said "qualified" insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks.

But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities.

Hong Kong's Hang Seng Index fell 4.2 percent, with shares of Chinese brokerages taking a pounding.

The impact was also felt in credit markets, where the spread on bonds from securities houses widened by 18-20 basis points.

"Chinese securities companies themselves have a lot of financial asset holdings, and when there is a sell-off there will be a big impact on their balance sheets," said Hong Kong-based Kingston Lam, credit analyst with Credit Agricole. "If they are using up cash to buyback shares it will be a further negative."

source: www.abs-cbnnews.com

Chinese markets welcome central bank easing but hunger for more

SHANGHAI - Chinese stocks shot up more than 2 percent on Thursday before paring gains and money rates eased after the central bank injected more money into the system to spur bank lending and support the world's second-biggest economy.

The yuan also dipped after the People's Bank of China (PBOC) cut banks' reserve requirement ratios by 50 basis points, a widely expected stimulus move that has helped fuel a stock market rally of nearly 40 percent in the last few months.

"The cut was largely priced in to the stock market (already), but it has reconfirmed an important message to investors that China's monetary cycle has firmly shifted to the loosening camp," Jing Ning, Portfolio Manager at Fidelity Worldwide Investment, wrote in a note to clients.

"The next question is whether this is followed by a rate cut by the PBOC. We will not see the impact of last November's rate decision on the economy until the end of this quarter."

Weighed down by a cooling property market, industrial overcapacity and slowing investment, China's economy grew at its slowest pace in 24 years in 2014 and is expected to cool further to around 7 percent this year, even with additional stimulus.

China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, an official survey showed on Sunday, raising expectations that policymakers will have to take more action to forestall a sharper slowdown.

But Chinese investors, like their counterparts in many other parts of the world around the world, are seeing the glass as half-full and betting that a flood of cash from central banks will continue to boost share prices even as the weaker economy threatens companies' profit margins.

In Shanghai, the CSI300 index was up around 1 percent by early afternoon after surging 2.5 percent at the open, while the Shanghai Composite Index .SSEC was up 0.7 percent after opening up 2.4 percent.

The yuan opened at 6.2560 per dollar and was at 6.2536 at midday, 59 pips away from the previous close.

As the economy cools, money has been flowing out of China, putting downward pressure on the currency and prompting large state-owned banks to step in to sell dollars to ensure the yuan's weakness doesn't trigger even larger outflows.

Analysts at ANZ believe the RRR cut will inject about 600 billion yuan ($95.96 billion) into the banking system, though questions remain over whether the money will fund real economic activity or be channeled into speculation like bigger bets on the stock market.

"We maintain our view that the authorities will not depreciate the currency, as that would risk even more capital outflows, which could prove to be destabilising," ANZ strategists wrote in a daily note.

Money market rates edged down slightly, with the weighted average of the benchmark seven-day bond repurchase agreement CN7DRP=CFXS was 4.4 percent in late morning, down a moderate 14 basis points from Wednesday.

Economists generally expect the central bank to cut reserve ratios one or two more times this year and lower interest rates again, in addition to pumping more funds into the system as it struggles to bring down persistently high funding costs which are putting further strains on debt-laden Chinese companies.

source: www.abs-cbnnews.com

China's yuan now world's 5th biggest payment currency

HONG KONG - China's yuan broke into the top five as a world payment currency in November, overtaking the Canadian dollar and the Australian dollar, global transaction services organisation SWIFT said on Wednesday.

After nearly a year firmly positioned at seventh spot, the yuan reached a record high share of 2.17 percent in global payments by value and is in sight of the Japanese yen, which has a share of 2.69 percent.

The U.S. dollar, euro and British pound remain the top three world payment currencies.

"It is a great testimony to the internationalisation of the RMB and confirms its transition from an 'emerging' to a 'business as usual' payment currency," Wim Raymaekers, Head of Banking Markets at SWIFT said in a statement.

The rise of various offshore yuan clearing centres around the world, including eight new agreements signed with the People's Bank of China last year, was an important driver fuelling this growth.

Global yuan payments increased by 20.3 percent in value in December compared to a year earlier, while the growth for payments across all currencies was 14.9 percent for the same period, SWIFT said.

Over the last year, yuan payments grew in value by 102 percent compared to an overall yearly growth for all currencies of 4.4 percent.

China is expected to make another push for the inclusion of the yuan in the International Monetary Fund's in-house currency basket in a review later this year - and this time round its G20 partners may be willing to listen.

The main argument against its inclusion in the Special Drawing Rights, a basket of yen, dollars, pounds and euro used as the IMF's in-house unit of account, is that the yuan is far from freely "usable" or convertible. But that argument has been gradually weakening as yuan offshore trading surges.

source: www.abs-cbnnews.com