China reacts to trade war as effects start to be felt

Investors have been wondering for weeks what China might do, other than impose levies of its own, in response to Donald Trump's imposition of tariffs on more than $200bn (?153bn) worth of Chinese imports.
After all, such is the imbalance of trade between China and the US, China was always going to quickly run out of American goods on which to slap retaliatory tariffs of its own.This weekend, investors got an answer, of sorts.The People's Bank of China (PBOC) on Sunday cut by one percentage point the so-called "Reserve Requirement Ratio", effectively the amount of cash that banks must hold as reserves, with effect from Monday next week.The move is expected to release some $109.2bn (€83bn) of cash into the banking system.Ostensibly, the move was aimed at supporting the economy, by encouraging the banks to lend more and stimulate demand.Investment growth during the first half of the year slowed to a record low, while retail sales growth has also been less than expected, raising concerns about the strength of the economy.But this move, the fourth of its kind this year, is also being seen as a response to the trade war initiated by the US president - the impact of which is largely yet to be felt.China's markets, which were closed all of last week for a national holiday, opened on Monday morning with the yuan falling to its lowest level against the US dollar since the middle of August.
China reacts to trade war as effects start to be felt

China's President Xi Jinping and US President Donald Trump are facing off in a trade war
It has led some to speculate that China is seeking to allow its currency to slide in order for its exports to remain competitive even though the country's premier, Li Keqiang, promised in a speech last month that the country would not seek to take part in competitive devaluation.Since the end of March, China's currency has fallen by just under 11% against the greenback.More surprising, though, has been the reaction has been in China's stock market.The CSI 300 index of blue-chip stocks fell by 4.3%, its biggest one-day fall since February 2016, while the broader Shanghai Composite Index fell by 3.7%, its worst one-day fall for three months.Since hitting an intra-day peak of 3587 on January 29, the Shanghai Composite has fallen by 24%, taking it firmly into bear market territory.An easing in monetary policy of this kind might normally be expected to give stock markets a lift.
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