Published: Wed, October 10, 2018
Markets | By Otis Pena

China Foreign-Currency Reserves Drop on Trade Tensions, Yuan

China Foreign-Currency Reserves Drop on Trade Tensions, Yuan

But the central bank's move to ease some pressure on the banking sector signals that the situation in China is perhaps not all rosy, experts noted.

The decision by China's central bank to cut the amount of reserves held by banks is an indication that authorities in the world's second-largest economy are getting nervous about a long-drawn trade war with the USA, experts said.

Pence's speech marked a sharper U.S. approach towards China, going beyond the bitter trade war between the world's two biggest economies, which has magnified concern about the outlook for China's economy.

"Cutting RRR at a time of relatively ample liquidity in the banking system is not likely to have much effect", wrote Zhao Jian, a finance professor of the University of Jinan. MSCI's broadest index of Asia-Pacific shares outside Japan .miapj0000pus was down 0.3 percent, after major stock markets around the world fell for a second straight day on Friday. Co, Kweichow Moutai Co and Hangzhou Hikvision Digital Technology Co - old favourites that jumped at least 97 per cent previous year - were the most sold by overseas traders on Monday.

Chinese stocks tumbled Monday as investors returned to a pile-up of negative news that accumulated over a week-long holiday, from disappointing economic data to worsening tensions with the United States.

"An RRR cut is not enough to counter the impact of the trade war", Shanghai Wisdom Investment General Manager David Dai told Reuters. Stocks in Shanghai and Shenzhen were down nearly 3 percent on Monday morning, while Hong Kong was down close to 1 percent.

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The Presidency has confirmed that an announcement on Finance Minister Nhlanhla Nene is imminent and urgent. Questions have also been raised about a PIC deal involving Nene's son, while he was chairman of the PIC.

However, Beijing has refused to yield to US complaints that the Chinese government steals or pressures foreign companies into handing over technology. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple U.S. companies had been compromised by malicious computer chips inserted by Chinese spies.

On the same day, the above-mentioned banks will use the funds released by the RRR cut to repay the medium-term loan facilities of the central bank where they borrowed.

Chinese Minister Liu Kun stated, "Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact".

Asian markets fell on Monday, extending last week's sell-off as another strong United States jobs reading further fanned expectations the Federal Reserve will hike interest rates at a quicker pace. Tokyo was closed for a public holiday. At present, the interest rate on China's benchmark bond is about 60 basis points higher than on the USA one. The yuan fell about 0.56 percent against the dollar in September.

China's foreign exchange reserves dropped to a 14-month low at the end of September amid prolonged trade tensions with the US and a weakening yuan.

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