China is pouring more cash into its flagging economy as it braces for further pain from the trade war with the United States.
The Chinese economy has lost momentum this year following government efforts to try to rein in high levels of debt. It’s also coming under pressure from US tariffs on more than $250 billion of Chinese exports.
China’s central bank said Sunday that it would move to free up 750 billion yuan ($109 billion) for new lending in an attempt to prop up growth. It’s the fourth time this year it has cut the amount of money banks are required to keep in reserve, but analysts say the problems run deeper.
The latest move is “far from enough to turn the economy around” because banks may still be reluctant to lend, said Larry Hu, an economist at investment bank Macquarie. He wrote in a note to clients Monday that the central bank will be forced to act again in the next few months.
Chinese officials have already turned to tax cuts, infrastructure spending and looser monetary policy as they seek to spur more economic activity.
“The economy clearly needs the support,” Wei Yao, a China economist at investment bank Societe Generale, said in a note to clients Monday. She predicted a further slowdown in the coming quarters.
Beijing’s latest move to loosen monetary policy also risks further weakening China’s currency, which is down almost 6% against the dollar this year.
The yuan “will surely face more depreciation pressure after the cut,” Hu said. The Chinese currency slipped 0.4% versus the dollar on Monday.
The People’s Bank of China is moving in the opposite direction from the US Federal Reserve, which last month raised interest rates for the third time this year. That makes it increasingly appealing for investors to hold assets in dollars rather than the yuan.
China’s stock markets have also been pummeled in recent months by fears about the health of the country’s economy and the intensifying trade war.
The benchmark Shanghai Composite Index dropped more than 3% on Monday after being closed all last week for a lengthy public holiday.
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