China Cuts Reserve-Requirement Ratio
The move suggests the government's policy focus is shifting toward promoting economic growth from controlling inflation, said HSBC China economist Ma Xiaoping. China so far has been focused on fighting inflation, tightening constraints on the economy while still continuing to seek steady growth, a scenario economists call a soft landing.
But Beijing's ability to pull off a soft landing has been in doubt amid Europe's continued debt crisis and soft global economic growth. In early November, an initial reading for purchasing managers surveyed by HSBC showed output in the all-important manufacturing sector shrinking month-to-month. Exports have also slowed.
My view - When I returned from a trip to China's manufacturing heartland in October I reported on how local businesses were feeling squeezed by restricted access to credit, the stronger Yuan, weak export markets and higher labour and commodity costs. The prevailing opinion was that the government was not about to allow the manufacturing sector to disappear and they anticipated monetary and fiscal easing in the not too distant future. (Also see Comment of the Day on October 26th).
The move suggests the government's policy focus is shifting toward promoting economic growth from controlling inflation, said HSBC China economist Ma Xiaoping. China so far has been focused on fighting inflation, tightening constraints on the economy while still continuing to seek steady growth, a scenario economists call a soft landing.
But Beijing's ability to pull off a soft landing has been in doubt amid Europe's continued debt crisis and soft global economic growth. In early November, an initial reading for purchasing managers surveyed by HSBC showed output in the all-important manufacturing sector shrinking month-to-month. Exports have also slowed.
Eoin Treacy's view When I returned from a trip to China's
manufacturing heartland in October I reported on how local businesses were feeling
squeezed by restricted access to credit, the stronger Yuan, weak export markets
and higher labour and commodity costs. The prevailing opinion was that the government
was not about to allow the manufacturing sector to disappear and they anticipated
monetary and fiscal easing in the not too distant future. (Also see Comment
of the Day on October
26th).
There
is a strong likelihood that today's announcement represents a change to government
monetary policy. Hiking bank reserve requirements have been among the primary
tools of monetary tightening as the government attempted to squeeze excess liquidity
out of the system, control profligate lending and prevent a bubble in the property
market from inflating further. A change to this tightening bias can be viewed
as positive for the stock market.
This
announcement was made after the market shut in Shanghai following a weak close.
The A-Share Index continues to hold above
the October lows but will need to sustain a move above 2650 to break the progression
of lower rally highs and suggest a return to medium-term demand dominance. The
FTSE Xinhua A600 Banks Index has been
ranging mostly above 8000 since August and a sustained move above 8700 would
be required to indicate a return to medium-term demand dominance.