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China unveils the latest $140 billion lifeline to prop up its economy and markets

Yuheng Zhan   

China unveils the latest $140 billion lifeline to prop up its economy and markets
  • China unveiled a plan to inject $140 billion of liquidity into its economy.
  • Officials will lower bank reserve requirements beginning in February.

Policymakers in China are set to introduce a large shot of liquidity to prop up the country's slumping economy and financial markets.

China's central bank announced Wednesday its largest "economic first aid package" in two years. Measures include a 50-basis points cut in required cash reserves for banks, translating into around a $140 billion liquidity injection into the banking system, starting from February 5.

The reduction in required bank reserves comes as post-pandemic recovery challenges cripple the world's second-largest economy. Officials in Beijing are faced with a deflationary outlook, a housing crisis, and recent turbulence in the country's stock market, with its benchmark Shanghai SE Composite Index hitting five-year lows in recent days.

People's Bank of China governor Pan Gongsheng said on Wednesday that the bank would roll out policies boosting commercial property loans either on Wednesday or Thursday night, offering investors some relief from the rising concerns about China's approaches to tackle the real estate sector and household wealth.

"At present, China's monetary policy still has enough room," said Pan. "We will strengthen counter-cyclical and cross-cyclical adjustments, and create a good monetary and financial environment for economic operations."

Expert reactions to the measure were mixed, with some sources telling Reuters that it's a start, though unclear how effective it will ultimately be in boosting the economic outlook.

2023 was a "hard to smile" year for China's economic outlook, with stock market tumbling 13% for the year. Meanwhile, Beijing is considering establishing a 2 trillion yuan ($280 billion) market stabilization fund sourced from the offshore accounts of state-owned enterprises, in a bid to stop the meltdown in stock prices that's wiped out over $6 trillion since 2021.

China's onshore yuan reached 7.19 on Wednesday, signaling a rally after the announcement.

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