China attempts to boost flagging economy in the face of US trade war

According to analysts, China central bank's move to free up CNY750bn ($109bn) risks further destabilizing the Chinese currency

9Oct

China is heightening its efforts to strengthen its flagging economy by injecting it with money to combat the effects of a trade war with the US.

China's central bank said on Sunday that it was planning to make moves to free up CNY750bn ($109bn) to be used for new lending, aimed to stimulate growth in its economy. This is the fourth time in 2018 the government has cut the amount of money Chinese banks are required to keep in reserve.


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These cuts follow a year of lackluster momentum in the economy as the government tried to rein in its high levels of debt through tax cuts, infrastructure spending and weak monetary policy, in addition to growing pressure from US trade tariffs. After already imposing heavy taxes in May, last month Trump announced a further 10% tariff increase on $200bn worth of imports from China.

However, the move has already faced heavy criticism from a number of analysts. Larry Hu, an economist at investment bank Macquari, wrote in a note to clients on Monday that the move is "far from enough to turn the economy around," and that the yuan "will surely face more depreciation pressure after the cut."

The move has resulted in an increased weakening of China's currency, which has been down almost 6% against the dollar this year and, following the news, on Monday the Chinese currency slipped to 0.4% versus the dollar.

Despite China's flagging economy, President Trump has rejected recent Chinese calls for negotiations over the trade dispute, claiming the offers are inadequate and that it is not the right time to make a deal.

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