Tuesday, 20 November, 2018

Chinese officials intervene to stop stock market fall

China's government is becoming increasingly worried about the losses with the benchmark Shanghai Composite Index down around 30 per cent from its January peak and sitting at four-year lows China's 3Q GDP growth slowest since 2009
| 22 October, 2018, 07:32

While it might seem like President Donald Trump is winning his trade war against China, a closer look at the data suggests other factors are to blame for the weak GDP growth.

Recent rapid losses in the yuan have prompted increasing speculation on whether the currency would breach the psychologically critical 7 per dollar level soon, given the local currency is facing a double whammy of depreciation pressure amid rising China-U.S. trade tensions and signs of slowing economy.

The GDP reading was the weakest year-on-year quarterly growth since the first quarter of 2009 at the height of the global financial crisis.

"The economy has grown within a reasonable range in the first three quarters of the year", the statistics bureau said in a press statement.

Prices in China's largest cities where the strictest control measures are in place, were mostly stable in September, though Guangzhou prices rose 0.4 per cent on-month and 4.3 per cent year-on-year.

Traders worry whether the market is accurately pricing in the impact of Trump's trade war with China, and wonder how much longer a nine-and-a-half-year-old bull-market rally can last.

There are external factors, such as global stock wobbles caused by interest rate hikes at major economies' central banks, and the China-United States trade frictions, and China's own economic reform has affected the markets, he said, adding that future economic uncertainties have influenced investor behavior.

And it's not like they have a lot of options on the table. The country is saddled with extraordinary levels of debt so policymakers are reluctant to take measures to stimulate the economy the way they did after 2008.

China's top financial officials moved to shore up confidence in the country's tumbling stock market, marshaling a rare show of coordinated verbal intervention as the government tries to prevent a $3 trillion equity rout from infecting the world's second-largest economy.


Restoring market confidence is proving to be one of the toughest economic challenges for China's leadership.

"China's slowdown is a little sharper than expected, but basically fits our narrative for the economy", said Bill Adams of PNC Financial Services Group in a report.

After starting the day in negative territory, Shanghai ended yesterday 2.6 per cent higher, while Hong Kong also performed a u-turn to gain 0.4 per cent.

"The current pace of export expansion is unsustainable", says China economist Larry Hu at Macquarie Capital Ltd., a Sydney-based investment bank. And Trump has said he's prepared to expand the tariffs to effectively cover all Chinese exports to the United States, which topped $500 billion a year ago.

By late morning, the Shanghai index was up 0.65 per cent, while Shenzhen gained 0.75 per cent.

He also said the central bank will use various monetary tools, such as relending and medium-term lending facilities, to allow commercial lenders to advance more loans to private companies.

Investors here will be warily eyeing the market for any reaction following the news.

But Yi also said the country's economic growth would still comfortably reach its full-year target of around 6.5 percent with the possibility of overshooting.

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