China: Beijing announces more measures to stabilize economy

The State Council China's cabinet announced a series of new measures in a Wednesday meeting to help stabilize the economy, including boosting consumption, supporting foreign trade and lowering the reserve ratio of commercial banks, according to a government statement posted on Wednesday night.

The measures are the latest in a spate of policies tabled recently, aimed at easing the pressure on the domestic economy caused by COVID-19, and have helped to boost steel market sentiment, industry sources believe.

The COVID-19 pandemic is worsening, with official data on Wednesday showing that in the country's economic powerhouse of Shanghai for example, another 2,573 new cases were confirmed and 25,146 asymptomatic infections were reported. The rapid spread of the contagion and the response of authorities to it is causing the country's economy to suffer.

Wednesday's meeting in Beijing, chaired by premier Li Keqiang, stressed the role that consumption can play in "constantly" boosting the economy. Attendees pledged to implement supportive measures to help industries that are seriously troubled by the pandemic, including catering, civil aviation, tourism and transportation.

The meeting also stated that the central government will promote consumption in certain key areas, including sectors heavily reliant on steel such as automobile and white goods manufacturing. Local governments must not impose any new restrictions on car purchases, and those that have such restrictions already in place must work to gradually increase the vehicle purchase quotas available. The meeting reemphasized the need to lift sales of new energy vehicles and to encourage the construction of charging stations for drivers of such vehicles.

Meanwhile, it also vowed to help foreign businesses to overcome trading difficulties including better utilizing the 'tool' of export tax rebates, in order to promote imports and exports.

Crucially, the meeting signaled a reduction in reserve ratio requirements for banks for the first time this year, to "support the real economy, especially industries, small and micro enterprises and self-employed entrepreneurs that are being seriously impacted by the pandemic."

This will see more liquidity injected into the market and lower the financing cost of Chinese enterprises, though many believe the cut will be limited as the reserve ratio has already been shaved to a relatively low level by the end of 2021.

"The country's economic growth has been greatly disrupted by the COVID onslaught, but as we are still targeting 5.5% GDP growth this year, necessary actions must be taken and taken in a timely manner," a futures analyst based in East China's Shandong province said.

An analysis by Yintech Tech, a Shanghai-based investment and financial service provider, estimated that the ongoing pandemic will drag down Shanghai's actual GDP growth by 10 percentage points and the country's GDP by 0.5 percentage point, even if the COVID-19 lockdowns are gradually eased from May.

China's steel futures market has reacted positively to the signals from Beijing, Mysteel Global noted. On Thursday, the most-traded October rebar futures contract on the Shanghai Futures Exchange (SHFE) closed the afternoon trading at Yuan 5,004/tonne ($786.6/t), reversing up Yuan 31/tonne or 0.6% on day.

The most-traded hot-rolled coil contract on the SHFE for October delivery also reversed up Yuan 30/t on day to Yuan 5,160/t as of the afternoon trading session.

Written by Olivia Zhang, zhangwd@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.