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China economy

China tries to prop up investor sentiment amid worries over economy and trade war with United States

Financial conference convened to help boost investor confidence but details on next steps yet to come

PUBLISHED : Wednesday, 05 September, 2018, 7:41pm
UPDATED : Thursday, 06 September, 2018, 12:14pm

China is stepping up its efforts to bolster market expectations, as worries about the trade war with the US and the economic outlook continue to hammer domestic investor confidence.

The Financial Stability and Development Commission (FSDC), the government agency responsible for coordinating regulation to prevent risks to the country’s financial system, convened a high-profile meeting on Friday to improve the effectiveness of the government’s efforts to manage market expectations.

The conference was hosted by central bank governor Yi Gang and attended by officials from Beijing’s top financial regulators, the four largest state-owned banks, and the nation’s stock exchanges as well as a number of prominent government economists.

Attendees shared their suggestions on how to better communicate with investors and make better decisions based on accurate economic and financial information, according to a statement released by the People’s Bank of China on its website on Tuesday.

The statement did not say what, if any, additional steps government bodies would take to bolster market expectations.

The government’s moves to improve investor confidence come as the Chinese stock market has recorded the worst performance of any major financial market so far this year, and as fears grow that the US will escalate trade tensions further by imposing tariffs on an additional $200 billion of Chinese imports as early as this week.

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The yuan, the Chinese currency, has seen a rapid depreciation of about 8 per cent against the dollar since early June when the US started the trade war. The currency’s slide was halted only after the central bank announced a series of steps in the past two weeks to curb speculation, including redeploying its “counter-cyclical factor” that allows it to better control the yuan’s daily trading range.

Pessimistic sentiment has spread rapidly since the start of the trade war, exerting downward pressure on domestic financial markets, said Lian Ping, chief economist at the Bank of Communications in Shanghai.

“The purpose of the [FSDC] meeting was clear: the authorities want [investors to adopt] rational and objective approaches on such matters,” said Lian, who attended the gathering.

Although the downward pressure on the economy remains, as seen in lower-than-expected infrastructure investment, growth remains stable overall, supported by industrial production and property investment, Lian said. He noted his research team is still predicting the country will grow by 6.7 per cent this year.

Still, the government must be watchful for any deterioration in conditions.

“Against the backdrop of an unfavourable environment, deteriorating expectations and a reduced risk appetite could reinforce the economic slowdown. Thus, it is necessary to adopt some supportive measures to offset [the effect of the external shock],” he said.

The government will also work to curb “irrational expectations” about its response to the slowdown, such as the idea that it will launch a major monetary and fiscal stimulus plan to support growth, the economist added.

At its meeting in late July, the Politburo, the government’s top decision-making body chaired by President Xi Jinping, directed officials to make the stabilisation of the economy and expectations its top priority.

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In response, the Ministry of Finance modestly loosened its purse strings last month by urging quicker issuance of local government bonds to fund infrastructure construction, while the central bank took steps to improve market liquidity.

The government has also started to address some of the country’s most challenging economic issues. The central bank and the country’s chamber of commerce recently held a special meeting to seek solutions to the lack of access by small and medium-sized enterprises (SMEs) to adequate financing. And regulators are cracking down on the widespread use by investors of their shares in listed firms as collateral for borrowing, which has become a problem as the values of those shares have declined.

Beijing also continues to push the message that it will be able to achieve its economic growth target of “around 6.5 per cent” this year, that it has sufficient tools to defend the yuan exchange rate and that it will ultimately be the winner of the trade war with the US.