China widens economic policy blitz with cash injection move

Bloomberg

The Chinese government is trying to set the economy up for a stronger start to 2020, with a multi-pronged policy push ranging from easier monetary settings to freer trade.
The latest pledge came when Premier Li Keqiang signalled that further cuts in the amount of cash that banks have to park as reserves will be forthcoming. In theory, that will free up funds to lend to private-sector companies that have struggled to access loans this year.
The funding promise follows a wide-ranging set of initiatives to boost the non-state sector announced at the weekend, and a fresh round of tariff cuts designed to spur domestic
demand.
After a bruising year that’s seen economic output growth slow to the weakest pace in almost 30 years, modest signs of stabilisation have begun to appear in incoming data. On top of that, trade negotiators this month succeeded in staving off another increase in tariffs on Chinese exports by US president Donald Trump.
Speaking in the western city of Chengdu, Li said the government will continue to cut the reserve ratio for banks and look into increasing re-lending and re-discounting quotas, steps that can also help reduce overall borrowing costs for small firms.
“Beijing may cut the required-reserve ratio slightly earlier than we previously expected given an increasing risk of locally-based credit contraction in some regions, and upcoming liquidity shortage in January 2020,” said Lu Ting, chief China economist at Nomura International Ltd. The moves would come “in the coming weeks before the lunar new year holiday, to stabilise liquidity conditions, credit supply and growth,” he said.
The private sector this year has faced difficulty accessing credit, amid a multi-year effort to reduce financial risk and rising defaults among corporate bond issuers. Despite an increase in overall credit growth, there’s evidence that not all lending is going to productive purposes.
Upgraded Outlook
Nevertheless, economists have upgraded their outlook for economic growth in 2020. Gross domestic product expansion will come in at 5.9% as easing trade tensions and the prospect of lower bank borrowing costs boost confidence, according to a survey of analysts and traders recenlty.
Survey respondents see policy makers maintaining a measured pace of easing into next year, trimming the price of central bank medium-term lending by 15 basis points with the first cut coming in the first quarter.