BEIJING: China’s central bank said yesterday it would pump 1.2 trillion yuan ($173 billion) into the economy as it ramps up support for a nationwide fight against a deadly virus that is expected to hit growth. The People’s Bank of China (PBOC) said in a statement it would launch a 1.2 trillion yuan reverse repurchase operation today to maintain “reasonable and abundant liquidity” in the banking system, as well as a stable currency market, during the epidemic. The country prepares to reopen its stock markets amid the coronavirus outbreak today.
It added that the overall liquidity of the banking system would be 900 billion yuan ($129 billion) more than in the same period last year. The move will kick in on the day that China’s financial markets reopen, following an extended Spring Festival break. The SARS-like virus which originated from the central Chinese city of Wuhan, has now infected over 14,000 people in the country and claimed more than 300 lives.
According to Reuters calculations based on official central bank data, 1.05 trillion yuan worth of reverse repos are set to mature today, meaning that 150 billion yuan in net cash will be injected. Investors are bracing for a volatile session in Chinese markets when onshore trades resume today after a break for the Lunar New Year which was extended by the government. China’s stock, currency and bond markets have all been closed since Jan. 23 and had been due to re-open last Friday.
There will be no further delays to the reopening, the country’s securities market regulator said in an interview published by the state-backed People’s Daily newspaper yesterday. To support firms affected by the epidemic, the CSRC said companies that had expiring stock pledge agreements could apply for extensions with securities firms, and it would urge corporate bond investors to extend the maturity dates of debt.
The CSRC is also considering launching hedging tools for the A-share market to help alleviate market panic and will suspend evening sessions of futures trading starting from Monday, it said. “We believe that the successive introduction and implementation of policy measures will play a better role in improving market expectations and preventing irrational behavior,” it told the People’s Daily newspaper.
The PBOC also announced measures Saturday to step up monetary and credit support for enterprises which are helping in its fight against the virus, such as medical companies. China’s central bank urged financial institutions to provide “sufficient credit resources” to hospitals and medical research units, among other measures. Authorities also relaxed tariffs on goods imported for use in the virus fight-including those from the United States, with which it has been engaged in a bruising trade war for around two years. The move to inject liquidity into its financial system comes as authorities work to shore up confidence in an already slowing economy.
The China Securities Regulatory Commission said yesterday that “the epidemic’s impact on the market is short-term, and will not affect the longer-term trend”, reported the state-run People’s Daily. But China’s travel and tourism sectors have already taken a hit over an unusually quiet Spring Festival break this year, with large-scale events cancelled, public attractions closed and people urged to stay home to help contain the outbreak. China has advised its citizens to postpone trips abroad and cancelled both overseas and domestic group tours.
Cinemas were made to close during what would otherwise have been a prime time for blockbuster releases. Other countries have told their nationals to avoid travel to the country as well, with various airlines trimming their schedules. Manufacturing has also been halted Taiwanese tech giant Foxconn is keeping its factories in China closed until mid-February, allowing more local employees to delay their return after the new year break. Toyota, IKEA, Starbucks, Tesla, McDonald’s and Volkswagen are among corporate giants temporarily halting production or shuttering outlets in China.
Tech giant Tencent was among companies telling staff to work at home until February 10. China saw economic growth of 6.1 percent last year, the slowest in around three decades. Analysts warn that this could weaken further if the spread of the mysterious pathogen goes on for an extended period. Analysts at S&P said consumption contributed about 3.5 percentage points of China’s growth rate in 2019. Even a 10 percent drop in consumption would knock about 1.2 percentage points off GDP, they warned. – Agencies