BEIJING, Aug. 26 (Xinhua) — The Chinese government’s easing of monetary policies is much more than a response to the recent stock market rout, as it aims mainly to lower borrowing costs and shore up economic growth.

On Tuesday, the People’s Bank of China (PBOC), the central bank, announced cuts in the reserve requirement ratio (RRR) and a lowering of interest rates, following a four-day losing streak on the stock market that chopped the benchmark Shanghai index by more than 20 percent.

On Sept. 6, the RRR for financial institutions will be cut by 50 basis points. The RRR for financial leasing companies and companies providing car loans will be lowered by 300 basis points.

From Wednesday, interest rates for one-year lending and deposits will be cut by 25 basis points to 4.6 percent and 1.75 percent respectively.

The measures helped arrest the freefall on the stock market, with the Shanghai index seeing its decline narrow to 1.27 percent on Wednesday, down from a 7.63-percent plunge on Tuesday and 8.49 percent on Monday.

European stock markets mostly surged on Tuesday after turmoil in the global markets on Monday. Major indices in the United States also witnessed narrowing declines on Tuesday compared with previous trading days.

UBS chief economist Wang Tao said the move signaled the Chinese government’s determination to safeguard financial stability and helped shore up sentiment in financial markets.

But that was only a small part of the government’s intentions, as China still faces huge downward pressure on economic growth.

China is lowering financial costs and maintaining reasonable liquidity to ensure steady growth, said Ma Jun, chief economist at the central bank’s research bureau.

“It was necessary to cut RRR and interest rates again to stabilize market expectation both at home and abroad, in a showcase of China’s role as a responsible large nation,” Ma said.

This is the fourth time the PBOC has cut both RRR and interest rates since the beginning of this year.

RATE CUTS TO LOWER COSTS

The rate cut is seen as the latest effort by the central bank to lower corporate funding costs and shore up the economy, after recent weaker-than-expected economic indicators disappointed global investors.

A main gauge of factory activity, the Caixin flash China general manufacturing PMI slipped to 47.1 in August, the lowest reading since March 2009, while the year-on-year growth in industrial output slowed to 6 percent in July, also down from a month earlier.

Zhu Haibin, chief economist for J.P. Morgan China, said the PBOC’s rate cut reassured the market amid growing concerns about the economy.

Wang also recognized the necessity of the move.

“Although financing costs have retreated somewhat, real interest rates have stayed high amid ongoing deflationary pressures, especially the contraction in the PPI,” she said.

The producer price index (PPI), a measure of costs for goods at the factory gate, fell 5.4 percent year on year in July, the 41st straight month of decline.

Wang expects the PBOC to cut the benchmark rate once more late this year to further reduce real financing costs.

China’s economy grew in the first half of the year by 7 percent, its lowest level since the global financial crisis. But analysts said the growth rate is likely to pick up based on support policies during the rest of the year.

RRR CUT TO STABILIZE ECONOMY

The RRR cut came amid strong market expectations of easing measures by the central bank to lessen the liquidity strain caused by shrinking funds outstanding for foreign exchange and the depreciation of Chinese currency the yuan.

Analysts believe the cut will effectively replenish the market and relieve cash-starved financial institutions.

Wang estimated around 700 billion yuan (nearly 109 billion U.S. dollars) of liquidity will be released immediately.

Giving out a similar projection, Lian Ping, economist with the Bank of Communications, wrote in a research note that the cut in deposit reserve ratio will prompt banks to expand credit and enhance their capacity to support the real economy.

The effects of the cut were instant and evident. On Wednesday, the benchmark overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one other, retreated to 1.786 percent from Tuesday’s 1.879 percent.

“The RRR cut, therefore, is necessary to keep base money supply stable, and to ensure a steady growth of money and credit in the coming months,” Wang said.

The money market has been suffering from lack of liquidity since the end of July despite repeated cash injections by the PBOC through less powerful operations including reverse repurchase agreements and short-term lending facilities.

Economists predict more easing measures from the central bank in the latter half of the year. Enditem

BEIJING, Aug. 25 (Xinhua) — Weak economic figures, a plunging stock market and the depreciation of the yuan have raised concerns globally about China’s economy, but Michael Bloomberg doesn’t seem worried.

Bloomberg, founder of the world’s leading financial information provider Bloomberg L.P. and former New York City mayor, has an unusual reason for his optimism: The many smiling faces in Chinese cities.

“One of the things I do when I’m in a city outside of New York [is to] see if the people walking down the streets are smiling.

“You see a lot of smiling faces here. Very few people are dour and look depressed. Most people here are happy, gung-ho. They have an enthusiasm,” he told Xinhua during an interview last week.

China’s economy is still growing. The progress and the length of time that it’s been growing are amazing, and you’re always going to have small fluctuations, he said.

MARKET ROUT, YUAN DEPRECIATION

China’s economy has slowed significantly in the past two years to what is officially called the “new normal.” Annual growth rate has fallen from 10 percent to 7 percent.

Adding to that pressure is a stock market rout since June 12 and the depreciation of the yuan in mid-August.

On Tuesday, China’s stock market continued its two-month slide. The key Shanghai index lost another 7.63 percent after an 8.49-percent plunge on Monday. It closed at 2,964.97, the lowest level since Dec. 15, 2014.

The Shanghai index has fallen by 42.74 percent from its peak at 5,178.19 points in the mid-June, triggering a ripple affect in the global market.

Bloomberg suggested that investors put the stocks away and get back to business.

If you’re an investor, you should buy stocks in companies that have a future — that is the only successful investment strategy, he said.

“If you worry about the small, short-term ups and downs, you will always be too late to get in and too early to get out. So I wouldn’t worry about that,” he said.

The stock market plunge was further complicated by a sudden depreciation of the yuan on Aug. 11, after the People’s Bank of China reviewed the way it calculated the central parity rate against the U.S. dollar.

The market responded with a 4.6 percent depreciation in the yuan-dollar central parity rate by Tuesday.

Bloomberg believes that the decision by the central bank was probably the right decision for China.

“I think, on balance, the government has a reasonable set of criteria so that people won’t panic, but that market forces over a long period of time can set [the yuan’s exchange] rates,” he said.

POTENTIAL

“I suppose it’s normal that people will say: ‘Oh, is this the beginning of the end?'” Bloomberg said.

“Don’t always feel that the world is coming to an end [in] the real world, nothing goes in a straight line […] Business people don’t go up and down every day. They look to the future.”

He said that in the longer term, China’s economy is still growing, and small fluctuations are natural, given the impressive progress and length of growth.

China, he said, was once a country where everybody went around on bicycles and very few people spoke English. Today, there are cars everywhere, and the average person has much more than ever before.

“The Middle Kingdom used to be very isolated, and today […] it is very willing to look outside — at other people’s experience, and if they think it fits, they adopt it.”

“China [has] a history spanning 5,000 years and you’re worried about two months? Seriously, you can’t worry about the short term,” he said.

Bloomberg said that there is still enormous potential in China for a number of reasons, such as its huge population, rich resources, education level and strong work ethic.

The potential for the Chinese people, and the potential for companies around the world to do business is really amazing, he said.

Although there are signs of weakness from disappointing exports to wobbling infrastructure investment, Bloomberg does not agree that there is an economic slowdown in China.

“By any rational basis compared to any place else in the world, China is still spectacular, there isn’t a slowdown and it doesn’t impact our business,” he said. [   Bloomberg’s business has grown in China and it recently hired about 150 people on the Chinese mainland. It will keep investing, taking new space and hiring new people, the founder said. Enditem