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PBOC 1.2tr yuan injection fails to stop losses

By Lawrence Gash

Chinese market closes down 7.72 per cent despite largest one-day intervention on record

PBOC 1.2 trillion yuan injection fails to stop losses

Efforts by the People’s Bank of China (PBOC) to limit losses via record liquidity injections have proved unsuccessful as Chinese stocks suffer their worst day in more than four years.

The uncertainty and slowdown prompted by the novel coronavirus prompted the Chinese central bank to carried out the largest one-day intervention on record. It injected 1.2tr yuan ($174bn, £133bn, €157bn) of liquidity into the banking system through reverse repo rate operations.

China’s stock, currency and bond markets had all been closed since January 23 as a result of the Lunar New Year and then the coronavirus outbreak. The Shanghai Composite index fell 7.72 per cent, wiping $393bn off the Chinese stock market.

The CSI 300 index of Shanghai and Shenzhen-listed equities suffered their worst drop in almost 13 years, falling 9.1 per cent.

The China Securities Regulatory Commission (CSRC) decided to reopen the stock market delays due to a number of factors. It argued that the outbreak would only have a short-term impact on the market.

It stated: “We believe that the successive introduction and implementation of policy measures will play a better role in improving market expectations and preventing irrational behaviour.”

More than four fifths of listed companies fell by the maximum 10 per cent daily limit. Many speculators will have been unable to capitalise on Monday’s plunges as the CSRC suspended short selling in the run-up to reopening.

The coronavirus, which has now been declared a global health emergency by the World Health Organisation (WHO), originated in the Chinese city of Wuhan.

Oil prices have also been affected by the outbreak. In the early days the Saudi Arabian Energy Minister dismissed the “extremely negative expectations adopted by some market participants, despite its [coronavirus’] very limited impact on global oil demand”. Brent and WTI crude oil futures have plunged in the subsequent weeks, both falling almost 20 per cent in the past month.

More than 17,000 are now believed to be infected with the virus across the world with 50 million Chinese citizens in 15 cities placed in quarantine. More than 360 people with the virus have died.

While the scale of the coronavirus motivated the PBoC’s mammoth injection, the Chinese banking system’s liquidity crisis pre-dates the recent epidemic. On January 2 the central bank freed up £115bn in liquidity to avoid a cash crisis in the run-up to the Lunar New Year.

FURTHER READING: China's central bank announces stimulus to stave off lunar liquidity hole

FURTHER READING: Two initiatives spotlight push towards digital banking

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