Chinese Shares Surge on Banks Reserve Ratio Cut and More Stimulus Signaled i...

BEIJING, January 24 (TMTPost)-- U.S.-listed shares of Chinese companies extended their rally after China announced new policy easing and signaled more stimulus in pipeline to boost economy and mitigate market confidence.

Credit：Xinhua News Agency

The Nasdaq Golden Dragon China Index, which tracks 65 China-exposed U.S.-listed firms, rose as much as 3.8% in the morning trading and closed about 1.9% higher on Wednesday, while the U.S. stock benchmark S&P 500 edged less than 0.1% to the record high. A number of Chinese shares outperformed following their rare strong rallies these days a day earlier. The American depositary receipts (ADRs) of Alibaba Group, the most valuable Chinese firm listed in U.S., closed 1.6% higher after jumped nearly 8%, the biggest daily gain since July 7 2023, on Tuesday. Shares of its e-commerce peers Pinduoduo and JD.com added about 2.6% and 1.6% respectively. Baidu, online brokerage firm Up Fintech and New Oriental, two components of Nasdaq Golden Dragon China Index, climbed 3.4%, 5.3% and 5.8% respectively. However, three prominent Tesla’s Chinese rivals--Li Auto, Nio and Xpeng underperformed, falling around 1.4%, 2.3% and 5.4%, respectively.

At a press conference earlier Wednesday, head of China’s central bank announced surprising new steps to bolster bank lending for households and individuals. The People's Bank of China (PBOC) will lower the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points, or 50 basis points (BPs), from Feb. 5 , said Pan Gongshen, governor of PBOC. The central bank’s move is expected to provide the market with long-term liquidity of some RMB1 trillion (US$140.85 billion). This is China’s first RRR cut this year, after two cuts last year. The reduction of 50 BPs is twice of the average cut in the past two years.

PBOC will also reduce re-lending and re-discount interest rates for the rural sector and small businesses by 25 BPs starting Thursday, amid efforts to promote moderate decrease of comprehensive financing costs, Pan said. The move came on heels of China’s major state-owned commercial banks’ cut in nominal deposit interest rates further in November and December.These moves will help drive the downturn of the loan market quoted interest rate, also known as the loan prime rate (LPR), which is the benchmark for credit pricing, Pan said.

Pan stressed the central bank will strengthen its counter-cyclical and cross-cycle policy adjustments, strive to stabilize the market, shore up market confidence and reinforce the economic recovery momentum. He vowed to create a good monetary and financial environment for the operation of financial markets, including capital markets, echoing Zou Lan, leader of the central bank’s monetary policy department. In an interwith with Xinhua News Agency two weeks ago, Zou said PBOC will create favorable financial conditions for China's economic growth through doubling down its counter-cyclical and cross-cycle policy adjustments, and use a variety of tools to strongly support a reasonable growth in credit. He suggested RRR cut is an option to boost lending capacity and credit.

Pan said there is still room for further monetary easing. Among others, the average RRR across all banks in China stands at 7.4% prior to the latest cut, which is way more than that in other major economies. Moreover, the international monetary environment is helpful for PBOC easing. Pan noted the spillover effect of monetary policies in developed economies will decrease in pressure in 2024, and that the cyclical differences in monetary policies between China and the United States are converging. These external changes are objectively conducive to enhancing China's autonomy and room for monetary policy maneuvers, the governor said. He highlighted the central bank will attach importance to maintaining price stability and promoting a moderate price recovery when it comes to policy making.

Pan also announced that the central bank will establish a credit market department this year, focused on supporting five priorities: technology finance, green finance, inclusive finance, pension finance and digital finance. In terms of currency market, Pan said the flexibility of the RMB exchange rate will be maintained following the principle that exchange rates are determined mainly by the market, but that rich response tools should be in place to maintain the basic stability of the exchange rate and keep it at a reasonable and balanced level.