“Prudent monetary policy will remain neutral, (we will) keep the master gate of money supply under control, and maintain reasonable expansion of credit and aggregate social financing,” the People’s Bank of China said in its annual financial stability report. The report also analysed the impact of the trade war with the US, saying that the “direct impact on China’s economy is limited, but we must pay attention to the impact on investor sentiment”. The report cited analyses by unnamed “international investment banks” that US tariffs could subtract 0.2 to 0.5 percentage points from China’s GDP growth.
The PBoC also warned of possible unanticipated financial risk events next year. “In the course of China’s transition and structural adjustment from high speed growth to high quality growth, some ‘grey rhino’-type financial risks may still be unleashed,” the central bank said. The term “grey rhino”, became popular in China financial circles last year. Unlike “black swans”, grey rhinos are common and easy to see, but because rhinos move very slowly, they appear less dangerous than they really are.
More News On China Stock Market: China’s muted stimulus dents investor hopes of market rescue.
Beijing abandons policy playbook credited with snuffing out previous turmoil. Around 2010 some China economy watchers began quipping about the “Wen Jiabao put option”, noting how China and its then-premier had replaced the “ Greenspan put”, named after the former US Federal Reserve chair, as the ultimate guarantor against market turmoil by enacting forceful stimulus at the first whiff of trouble.
Today many investors are waiting for China to return to this familiar playbook and launch a fresh round of state-led investment in factories, railways and ghost cities, providing a jolt of demand to the global economy after US stocks suffered their worst month since the financial crisis. But today Beijing shows no intention of riding to the rescue of global markets. “Markets have been disappointed with China’s policy easing, and sentiment remains very weak,” said Tao Wang, chief China economist at UBS in Hong Kong. “So far these measures haven’t reversed the credit slowdown.”
She added: “Policy easing so far mainly focused on reversing macro tightening from early 2018 rather than rolling out new stimulus. The government is quite rightly wary about negative consequences of new stimulus, especially on debt and financial stability.” To be sure, China has adopted a series of stimulative policies in recent months, including cuts to bank reserve requirements and increased fiscal spending. Positive signs from a phone call between Chinese President Xi Jinping and US President Donald Trump also sparked a rally on Friday.
But the scale of stimuli has so far been modest by the standards of what Mr Wen’s successor, Li Keqiang, has disapprovingly labelled “ floodwater-style stimulus”. Following more weak economic data on Wednesday, a politburo meeting signalled a likely escalation of stimulus, calling on policies to stabilise employment and investment while omitting previous references to cutting debt. Still, few analysts expect another 2008-style stimulus.
In China’s stock market, some investors are awaiting a return of the “ national team” after the blue-chip CSI 300 index has tumbled 21 per cent this year and 8 per cent in October alone. That group of state-backed investors spent at least $230bn to rescue the market during the 2015 market rout. But actual measures have been much more modest. State-owned financial institutions are planning a Rmb100bn ($14.4bn) fund to prevent a fire sale as margin calls threaten forced liquidation of shares that have been pledged as collateral against loans. But the scale is paltry compared with an estimated Rmb41tn worth of pledged shares outstanding by mid-October.
Beyond that, the securities regulator has mostly relied on optimistic rhetoric. A supportive statement from the agency on Tuesday prompted a modest market rally but was little more than a bland recitation of regulatory principles. The watchdog promised to “enhance market liquidity”, but the phrase appeared to refer to reducing trading restrictions rather than a commitment to deploy public funds.
“Last time the government directly injected funds into the stock market. This time around, they are choosing more low-cost rescue effort,” said Tao Yu, partner and stock investment manager at Brilliance Asset, a hedge fund based in Beijing.