Caution over bubble as China urged to ease policy amid slowdown
Analysts sound caution over bubble as the mainland's rate cut attracts speculative funds to the stock markets and results in volatility
Calls are rising for Beijing to ease policy to stem a slide in economic growth, although analysts say the timing may be complicated by the volatility on the domestic stock markets sparked by the central bank's interest rate cut.
Despite greater lending, as revealed by the People's Bank of China's latest loan data, industrial activity on the mainland cooled further, suffering from weak demand and a temporary shutdown of thousands of factories during the Asia-Pacific Economic Cooperation summit, when Beijing was trying to improve air quality.
The slump in real estate investment continues although retail sales are going through an acceleration that is likely to be short-lived, according to other new data released yesterday.
Economists widely expect more policy relaxations over the next months to ease funding bottlenecks amid benign inflation after the central bank made its first cut in interest rates in two years last month.
The Shanghai stock market wrapped up a volatile trading week, closing up 0.4 per cent yesterday. A lacklustre economic outlook sent the yuan down 0.6 per cent against the US dollar this week, the sharpest decline since March.
A cut in banks' reserve requirement ratio from the current record high of 20 per cent would release more funds for banks to lend, analysts say. There were unconfirmed reports on Thursday that the central bank injected 400 billion yuan (HK$505.6 billion) into the interbank market to ease liquidity.
However, Mizuho Securities' Greater China chief economist Shen Jianguang said the mainland could delay its decision to cut the reserve ratio to avoid sending a wrong signal to the market, which has attracted massive speculative funds over the past weeks.