China's central bank injected a record $83 billion into the country's financial system on Wednesday January 16th, in an attempt to avoid a cash shortage that would put even more pressure on the country’s weakening economy. The action is in line with recent measures by China's policymakers to keep up the economic stimulus this year and do more to protect jobs as growth cools to a 28-year low.
However, a raft of measures last year – from big rail projects to tax cuts – seems to have had little impact so far, and recent data indicates economic activity is cooling more quickly than expected.
"The news is clear - the economy needs help," Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong, told Reuters in a report.
Wednesday's open-market operation, the central bank's largest net single-day injection on record, came a day after China's state planner, central bank and finance ministry all offered reassurances to investors, signalling more spending and other types of policy support.
Is it enough? Shockingly weak December trade data released earlier this week, along with the shrinking of factory activity in response to the US-China trade war, are causing speculation over whether more rapid and aggressive policy measures are needed to help the world's second-largest economy get back on its feet.
Authorities now agree the economy needs more decisive support, "and today's large injection reflects that," Nguyen added.
The People's Bank of China (PBOC) said Wednesday's injection was aimed at ensuring there are ample funds in the financial system, which is facing strains as tax payments peak in mid-January, and as demand for cash picks up ahead of the Lunar New Year holidays starting in early February.
"The banking system's overall liquidity is falling rapidly," it said in a statement.
While sizable cash injections are common this time of year ahead of the long holidays, this addition was much larger than usual and follows a substantial cut in reserve ratios for banks announced this month, which will free up a total of $116 billion for new bank lending. The first stage, a 50-basis-point cut, came into effect on Tuesday. An equal-sized cut is scheduled for January 25th.
The move also came a day after money supply data showed several of China's key credit gauges continue to languish around record lows, despite government efforts to channel more funds to cash-starved companies and lower their financing costs.
While financial authorities have provided incentives for banks to keep lending to struggling firms, the same banks are now wary of bad loans after a long regulatory crackdown on riskier lending.
Many businesses, facing slowing sales, are in no mood to make the fresh investments that Beijing is counting on. New medium- and long-term corporate loans last month fell to less than half of average December levels, Nomura noted.
In a rare encouraging sign for the Chinese economy, house prices remained buoyant in December, suggesting that at least some of Beijing's efforts at support are beginning to have an effect. Construction also appears to be slowly picking up as regulators fast-track approvals of more infrastructure projects.
But analysts agree that steps to boost domestic spending so far will take some time to percolate through to the broader economy, with most not expecting activity to convincingly bottom out until summer 2019.
On Monday, China is expected to report the economy grew 6.6% in 2018, cooling from 6.9% the previous year and giving evidence of the slowest rate of expansion the country has seen in 28 years.
The pace is expected to slow further to around 6.2% this year. Some analysts' in-house models suggest activity is already much weaker than official data suggests.
Darkening the picture further, hopes are dimming once again that China will be able to reach a trade deal with the United States in current negotiations. US tariffs have increasingly weighed on Chinese exports in recent months, disrupting its supply chains and dragging down business and consumer confidence.