China vows financial stability as markets brace for sell-off

Beijing: Chinese regulators unveiled a slew of measures to ensure stability of its $45 trillion financial system as the nation stepped up the fight against the spreading virus.

The People’s Bank of China announced on Sunday it would supply 1.2 trillion yuan ($174 billion) to money markets on Monday.

The securities regulator that it would halt night sessions for futures trading from Monday until further notice, and allow some share pledge contracts to be extended by as long as six months as part of measures to improve market expectations and prevent irrational behaviour.

That follows the announcement by the banking regulator a day earlier that it will “suitably extend the grace period” for firms that have difficulty meeting the end-2020 deadline to comply with new asset management rules. For insurers with ample solvency, the regulator will allow them to “appropriately raise their investment” in equities from the current limit of 30 per cent of assets.

Economic impact

As concerns mount over the economic impact from the new coronavirus that has infected more than 14,000 people and killed over 300 so far, Chinese policymakers including the central bank have ramped up efforts to shore up the financial system and capital markets which are bracing for a sell-off on Monday when markets re-open.

Citigroup on Friday said it expects China’s GDP growth to slow to 4.8 per cent this quarter from 6.0 per cent in the fourth quarter. It cut its full-year forecast for 2020 to 5.5 per cent from 5.8 per cent.

“It’s natural for financial markets to fluctuate under risks but the impact of the epidemic will be “short-term and temporary,” said CBIRC vice-chairman Cao Yu, adding that the nation’s financial institutions and markets are more resilient after a long period of reform and opening, as well as the deleveraging campaign in recent years.

China is in a multi-year effort to crack down on financial risks and contain growth in shadow banking. The most stringent polices include a requirement that all existing products comply with new asset management rules by the end of 2020.

Deadline

It’s getting increasingly difficult for banks to meet that deadline as the economy slows and defaults surge.

The regulators called for lowering interest rates, providing more loans in heavily-stricken areas, and facilitating some borrowers’ financing to repay debt to support the nation’s fight against the virus outbreak. Meanwhile, listed companies and bond issuers that aren’t able to submit their 2019 annual report or 2020 first-quarter report on time as a result of the virus can apply for extensions from the stock exchanges.

Li Chao, vice-chairman of China’s securities regulator, urged brokerages and funds to guide investors to “rationally and objectively” evaluate the impact of the epidemic, and hold long-term and value-based investment philosophies.

The watchdog has made “special arrangements” for this special period and it respects market rules and want to be flexible with the regulation.

The CSRC said while most brokerages’ outlets have suspended on-site trading due to the virus concerns, over 95 per cent of the nation’s equity transactions were already conducted via online or mobile phone apps.