Risk appetite buying in the Mainland China market today bolstered after senior economic leaders, briefing reporters Tuesday on the outcome of an annual policy-setting meeting last month, pledged to keep the monetary policy of the world's No. 2 economy flexible but stable and to support growth with improved access to financing for private and smaller enterprises. The assurances came as China weathers its worst slowdown since the global financial crisis amid a punishing tariffs dispute with the U.S.
The China's National Development and Reform Commission said in a statement that China will strengthen monitoring of its economic situation and improve its "reserve" of economic policies. The stimulus measures include a cut to value added tax rates for selected industries and provide tax rebates for others, helping to soothe fears about a slowdown in China and its implications for global growth. The stimulus from the China's spurred a positive movement in most of the markets, following an unexpected fall in China's December exports and imports.
The PBOC has slashed RRR five times over the course of a year to keep liquidity from tightening too much as the economy slows. Twin cuts announced this month were the largest so far. The PBOC announced earlier this month that it was cutting the ratio of cash that banks must hold as reserves by 100 basis points (bps), with the first stage of 50 bps reduction effective on Tuesday.
China's government is turning increasingly to tax cuts as the first line of defence against a slowing economy, in a departure from the wasteful infrastructure binges of the past. Further evidence of the shift emerged Tuesday, as senior policy officials pledged that tax reductions on a larger scale are in the pipeline, amid worsening economic data. JPMorgan Chase economists estimate the total impact will be around 2 trillion yuan (US$300 billion), or 1.2% of gross domestic product. Last May the government cut value added taxes for manufacturing, transportation, construction, telecommunications and farm produce industries, followed by a cut in personal income taxes and the introduction of more deductions. Earlier this month, the State Council announced a US$29-billion annual tax cut plan for small companies.
The stimulus from the China's spurred a positive movement in most of the markets, following an unexpected fall in China's December exports and imports. Senior Chinese economic policy officials vowed to increase tax cuts to boost growth, while lending data from the country suggested December estimates may be exceeded.
China's exports to the world fell 4.4% in December from a year earlier, the biggest monthly drop in two years, pointing to further weakening in the world's second-largest economy. Imports also unexpectedly contracted, falling 7.6%, the biggest decline since July 2016. China's global trade volume rose last year but its surplus with the world fell 16.2% to $351.76 billion in 2018, as imports rose 15.8% while exports gained 9.9%.
CURRENCY NEWS: China yuan edged up against greenback on Tuesday, after central bank set stronger mid-point rate. Prior to market opening on Tuesday, the PBOC set the midpoint rate at 6.7542 per dollar, the strongest since July 19, and 18 pips firmer than the previous fix of 6.756. In the spot market, the onshore yuan opened at 6.7500 per dollar and was changing hands at 6.7520 at midday, 150 pips firmer than the previous late session close and 0.03 percent stronger than the midpoint.
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