February 24, 2020

China Injects $126 Billion Into Its Slowing Economy

Days later, central banks in several countries announced surprise interest rate cuts, setting off fears across global markets of a currency war that could stoke inflation and further weaken trade ties.

More than 30 central banks have cut interest rates this year amid rising concerns about economic growth and trade tensions. The Federal Reserve in the United States joined the parade last month, cutting its benchmark interest rate for the first time in a decade.

China’s central bank took its action on Friday after Premier Li Keqiang called for the use of tools to shore up the country’s economy. At a State Council meeting this week led by Mr. Li, officials acknowledged that the economy was facing more pressure in areas like job growth, finance and trade.

The central bank’s move is its latest to ease monetary policy. China has long used the banking system, which is controlled by the state, to flood the economy with cash when growth starts to slow. But experts have warned that this approach is becoming less effective as the country’s debts rise.

Some economists have also warned that such an approach fails to get money flowing to the most important and productive sectors of the economy, like privately managed businesses.

“You can release funds for banks to lend to private firms, but you’re saying to the banks, ‘Your cost of funds is unchanged, but your risk is much higher,’” said Shaun Roache, chief economist for Asia Pacific at S P Global. The government, Mr. Roache added, is effectively telling banks to lend to riskier clients at lower interest rates.

“These companies aren’t implicitly guaranteed the way that state-owned companies are,” he said. “There is no incentive for the banks to do this.” For this reason, he said, big banks are unlikely to lend more than they are told to.

Article source: https://www.nytimes.com/2019/09/06/business/china-economy-reserve.html?emc=rss&partner=rss

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