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News from China
Fed unveils bold moves to boost US economy
24th March 2020

 In its boldest effort to protect the US economy from the novel coronavirus, the Federal Reserve says it will buy as much government debt as it deems necessary and will also begin lending to small and large businesses and local governments to help them weather the crisis.

The Fed’s announcement on Monday removes any dollar limits from its plans to support the flow of credit through an economy that has been ravaged by the virus. The central bank’s all-out effort has now gone beyond even the extraordinary drive it made to rescue the economy from the 2008 financial crisis.
“The coronavirus pandemic is causing tremendous hardship across the United States and around the world,” the Fed said in a statement. “Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”
Financial markets sharply reversed themselves after the announcement. Dow Jones futures swung more than 1,000 points from about 500 down to a rise of roughly 500 before falling back again after the market opened. The yield on the 10-year Treasury bond also fell, a sign that more investors are willing to purchase the securities.
The Fed said it will establish three new lending facilities that will provide up to US$300 billion by purchasing corporate bonds, a wider range of municipal bonds and securities tied to such debt as auto and real estate loans. It will also buy an unlimited amount of Treasury bonds and mortgage-backed securities to try to hold down borrowing rates and ensure those markets function smoothly.
The central bank’s new go-for-broke approach is an acknowledgment that its previous plans to keep credit flowing smoothly, which included dollar limits, wouldn’t be enough in the face of the viral outbreak, which has brought the US economy to a near-standstill as workers and consumers stay home. Last week, it said it would buy US$500 billion of Treasuries and US$200 billion of mortgage-backed securities, then quickly ran through roughly half those amounts by week’s end of the week.
The New York Federal Reserve said it would purchase US$75 billion of Treasuries and US$50 billion of mortgage-backed securities each day this week.
“They’re really setting the economy up” to start functioning again when the health crisis subsides, said Donald Kohn, a former Fed vice chair who is a senior fellow at the Brookings Institution. “Part of this is about the other side of the valley: Make sure the credit is there.”
Still, he noted: “These things will take some time to set up.”
Just knowing that the Fed is on the case should reassure businesses as the programs ramp up, Kohn said.
Source: Shanghai Daily, March 24, 2020
PBOC official plays down financial crisis
23rd March 2020

 Despite recent tumbling in the global financial market in the wake of the novel coronavirus pandemic, it is still too early to tell if a global financial crisis has arrived, a Chinese central bank official said on Sunday.

Chen Yulu, vice governor of the People’s Bank of China, noted that a global financial crisis, besides causing continued panic market collapse, usually triggers the bankruptcy of key financial institutions and severe damage to the real economy.
Many countries have introduced countermeasures against the market turbulence, and their effects remain to be seen, Chen told a press conference.
The PBOC, for its part, has strengthened policy coordination with international organizations and major central banks while informing central banks of the G20 group and major international financial organizations on the effective response to the COVID-19 outbreak, he said.
China supports international multilateral platforms and institutions such as the G20 and the International Monetary Fund to play a positive role in policy coordination and crisis relief, so as to contain the pandemic and keep the global economy and financial markets stable, said Chen.
While participating in international macro-policy coordination, China will work to keep the home market stable in accordance with existing principles and policy frameworks, which is the best way to contribute to global financial stability, he added.
China’s financial market remains generally stable compared with overseas markets, said Li Chao, vice chairman of the China Securities Regulatory Commission.
The A-share market has shown strong resilience and anti-risk ability with a mild decline, he said, attributing this to measures taken by China over recent years to advance supply-side structural reform in the financial market.
To ease risks on the domestic market, the CSRC has taken a series of measures, including lowering the leverage level, reducing the stock pledges of listed companies and controlling the increments, Li noted.
Chen, meanwhile, said that consumer inflation is likely to ease in the following quarters.
Although the outbreak’s impact on consumer prices will continue for a while, he expects the overall inflation to decline quarter by quarter as production resumes.
Chen said price stability is subject to economic fundamentals, and China’s overall balance of supply and demand and stable macro-economy does not support long-term inflation or deflation.
Regarding the exchange rate of the yuan, Chen said it will maintain two-way fluctuations within a reasonable and balanced range, while the yuan-dollar rate would float around 7.
He expects the yuan exchange rate to remain stable in the long term, citing China’s sound economic fundamentals, appropriate interest margin between local and foreign currencies, and its ample foreign exchange reserves.
Xuan Changneng, deputy director of the State Administration of Foreign Exchange, also pointed out that the recent devaluation of the yuan against the US dollar was notably milder than that of currencies such as Euro and British pound in the same period.
Between March 10 and 19, while the dollar index, which measures the greenback against six major peers, surged 6.8 percent, the yuan only weakened 2 percent. Against a basket of currencies, the yuan even strengthened 2.7 percent, according to Xuan.
Source: March 23, 2020
Xi, Putin discuss strengthening cooperation on fighting COVID-19 by phone
20th March 2020

 Chinese President Xi Jinping said on Thursday that China stands ready to work with all other countries to step up international cooperation against the COVID-19 epidemic and safeguard global public health security.

In a phone conversation in the night with his Russian counterpart, Vladimir Putin, Xi pointed out that the novel coronavirus disease broke out ferociously, and China had to rise up to the challenge and respond to it bravely.
That is because it concerns not only the lives and health of the Chinese people, but also the public health security of the whole world, added the Chinese president.
Thanks to arduous efforts, the situation of epidemic prevention and control in China continues to improve, with the order of production and life being restored at an increasing pace, Xi said.
China, said the president, has the confidence, capacity and certainty to achieve the ultimate victory over the epidemic.
He added that China is willing to make concerted efforts with Russia and all other countries to tackle common threats and challenges and safeguard global public health security.
He called for closer international cooperation in epidemic prevention and control, experience sharing on containment and treatment, and facilitation of joint research.
Xi stressed that at the special moment when both countries are fighting against the epidemic, China and Russia have been supporting each other and cooperating closely, which has demonstrated the high level of China-Russia relations in the new era.
Bilateral cooperation enjoys a solid foundation and a strong endogenous driving force, Xi said, suggesting that the two sides take the Year of Scientific and Technological Innovation between China and Russia as an opportunity to push for more cooperation fruits in various fields.
China, he said, firmly supports the important moves taken by Russia to achieve lasting peace and stability in the country, and is confident that under Putin's leadership, the Russian people will continue to forge ahead in unity and make new achievements along the development path that suits their country's national conditions.
For his part, Putin said that the remarkably effective measures taken by the Chinese government has not only contained the epidemic's spread inside China but also made important contributions to safeguarding the health of people in other countries.
Russia highly appreciates and is pleased with China's efforts, he said, adding that China has set a good example for the international community by lending a helping hand to other epidemic-hit countries in a timely manner.
What China has done represents a resounding answer to the provocation and stigmatization by a certain country over the COVID-19 epidemic, said the Russian president.
Russia, he added, hopes to work with China to carry on mutual support and close cooperation in combating the epidemic, and continuously deepen the Russia-China comprehensive strategic partnership of coordination.
Source: Shanghai Daily, March 20, 2020
ECB launches US$820b 'pandemic emergency' bond-buying scheme
19th March 2020

 The European Central Bank on Wednesday announced a surprise 750-billion-euro (US$820-billion) scheme to purchase government and corporate bonds, as it joined other central banks in stepping up efforts to contain the economic damage from the coronavirus.

The so-called Pandemic Emergency Purchase Program comes just six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets, piling pressure on the bank to open the financial floodgates.
The US$820-billion asset purchasing scheme will be temporary and be concluded once the bank "judges that the coronavirus COVID-19 crisis phase is over, but in any case not before the end of the year," it said in statement.
The decision came after the bank's 25-member governing council held emergency talks by phone late into the evening.
The ECB said it was "committed to playing its role in supporting all citizens of the euro area through this extremely challenging time."
"The governing council will do everything necessary within its mandate," it said, adding that the size of the asset purchases could be increased if needed.
It also said it stood ready to relax some self-imposed restrictions on bond purchases to potentially help countries like Italy whose bond yields have soared over the coronavirus panic.
Critics had in recent days slammed the ECB for not doing enough to support the eurozone compared to the drastic action taken by the US Federal Reserve.
But the immediate reaction from analysts was positive.
The ECB's latest medicine could be "a game changer for the euro area economy and credit markets" if it was accompanied by fiscal action from eurozone governments, Pictet Wealth Management strategist Frederik Ducrozet said.
Source: Shanghai Daily, March 19, 2020

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