PBOC says China’s financial system is stable

Here’s another postscript to the story of the world coming to an end in China.

According to US financial media, China was going to destroy the world’s economy last week. Until, of course, the Chinese stock market rebounded nearly 15% over a three-day rally.

A sheepish paragraph in the Wall Street Journal on Monday’s trading action in China says it all. “Beijing’s moves appeared to stem a recent selloff. The Shanghai Composite Index ended 2.4% higher, though it is still down more than 20% since hitting a multiyear high in mid-June,” the Journal wrote.

“A recent selloff?” Sounds like Chicken Little is on holiday.

China bears can take refuge in the fact that the markets were more mixed on Tuesday. The benchmark Shanghai Stock Exchange Composite Index fell 1.2% to 3,924. While the small-cap barometer, the ChiNext Price Index, rose 1.6% to 2,726.

But looking at the big picture, the People’s Bank of China said Tuesday said the nation’s financial system was basically stable and it would maintain prudent monetary policy, according to a statement on the central bank’s website.

The PBOC also said it would lower borrowing costs and keep the yuan exchange rate at a “reasonable level,” without providing details, reported Reuters. Last month, the bank issued guidelines for banks to issue large-scale certificates of deposit to individual and institutional investors, paving the way for full interest rate liberalization. The bank also repeated that it would maintain a prudent monetary policy and keep liquidity “appropriate,”reported Reuters.

Second-quarter gross domestic product data is expected to be released on Wednesday.



Categories: Asia Unhedged, China

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