China reveled in a surge of foreign investment over the past year, as its economic growth seduced financiers away from their pandemic-stricken domestic interests into the gradually-opening Chinese market, contributing to China’s ”world-leading financial center” aspirations. However, the wave of capital brought with it the debris of eventual loss of governmental control, a market potentially vulnerable to the ebb and flow of investor vagaries, and a possible outflow-inflow imbalance (1).
At this time, China was also working on a gradual tightening of their monetary policies, preempting bubbles by implementing credit and loan regulations. This sparked a plunge in China’s credit impulse, which put downward pressure on its economic growth (2), and has potential contractionary ramifications to markets and economies across the globe (3).
While China’s Q2 reported some lower-than-expected numbers, it was, overall, only by a small margin (4), however, the PBOC announced a 50 base points reduction of the required reserve ratio, flooding the economy with 1 trillion yuan, as regulators anticipate further deceleration of growth rates following the post-lockdown surge in demand.
hile central bank intervention was anticipated as an eventuality, some analysts question the early timing of it and what the implications may be to the stability of the Chinese banking system (5).
Beijing’s be-careful-what-you-wish-for dilemma
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China Cuts Reserve Ratio By 0.5% Unleashing 1 Trillion Yuan In Liquidity To Boost Economy