"...emerging markets will grow faster than the
developed world for decades to come."

Gideon Rachman, The Financial Times

Chinese economic growth stimulated by liquidity boost

Chinese economic growth stimulated by liquidity boost

The People’s Bank of China, the country’s central bank, is injecting $81 billion dollars into the economy to stimulate Chinese economic growth in the slowing economy. The country’s deepening economic slow down is the worst since the 2007-08 global financial crisis.

According to official data released on September 13, China is experiencing its weakest expansion in industrial-output expansion since the 2007-08 global financial crisis, exacerbated by declining investment and retail sales growth – accentuating a deepening economic slowdown.

The recent data follows a second straight drop in imports and a 40 percent decline in the broadest measure of new credit in August, combined with a pullback in manufacturing.

The stimulus package will be funneled through the country’s five biggest banks – the Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Bank of Communications Co., providing them with more money to lend over a 3-month period, with the aim of stimulating business activity and spurring domestic demand. This move is expected to produce more targeted results compared to the implementation of broad-based monetary and fiscal measures.

Prior to this stimulus measure, the central bank made two targeted reductions in reserve ratios for banks – the first in April which applied to selected small rural banks and the second in June which covered most city commercial banks and non-county-level rural commercial banks and cooperatives. Regulators also increased banks’ capacity to lend money by changing the way loan-to-deposit ratios are calculated.

Evidently, the government is taking steps to sustain Chinese economic growth in the world’s fastest growing economy – which analysts believe might miss its annual growth forecast. Following the news of the liquidity injection, bank stocks rallied in Hong Kong and the Chinese currency stabilized.

 

Dwarka Lakhan

Dwarka Lakhan

Dwarka Lakhan is a pioneer in emerging markets journalism in Canada. His first emerging markets article, “Africa Joins Ranks of the Emerging,” appeared in Investment Executive, Canada’s leading newspaper for financial advisors, in September 1994. Since then he has written hundreds of articles on the full spectrum of emerging markets and has conducted more than two thousand interviews with emerging and frontier markets investment professionals.


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