China orders more lending to entrepreneurs amid trade spat

The PBOC said it will cut for most lenders the amount of cash set aside as reserves from Oct. 15

Spot yuan was on track for its lowest close in seven weeks against the USA dollar, as expectations of more easing measures by China, plus surging USA bond yields, put pressure on the Chinese currency. "Now, the Chinese economy is under even tougher pressure amid escalating trade friction", it said.

"There's an acute shortage of confidence in the market".

"Foreign investors turned bearish, unlike their previous optimistic buying of Chinese A-shares", says Mr Steven Leung, executive director at UOB Kay Hian (Hong Kong). The US is battling an exchange war with China which debilitates the viewpoint for Chinese assembling and fares. The Shanghai Composite lost 3.7% of its value, while the Shenzhen Composite was down just over 4% at the close of the day's trading. The blue-chip CSI300 index, which also fell briefly into negative territory, was up 0.3 per cent. The gauges followed Hong Kong's Hang Seng index, which remained open during the holiday and slid 4.38 percent over its course.

The pan-European FTSEurofirst 300 index of leading regional shares closed down 1.14 percent, its biggest one-day drop in a month, while MSCI's gauge of stocks across the globe shed 0.31 percent.

On Sunday, the People's Bank of China announced a 100-basis-point cut to lenders' reserve requirement ratio (RRR), stepping up efforts to pump more liquidity into markets and support the domestic economy.

"An RRR cut is not enough to counter the impact of the trade war", Shanghai Wisdom Investment General Manager David Dai told Reuters. "And today's fall is not surprising after weak performance in external markets during the holiday".

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Telecoms equipment maker ZTE led tech shares downward on Monday, falling 8.14% to 16.81 yuan after a Bloomberg News report last week said China had inserted special microchips into computer goods exported to the U.S. to steal technology secrets.

"China sectors such as energy, IT and industrials will be most impacted based on our analysis, while sectors such as real estate, insurance, diversified financials, telecom and utilities generate virtually no revenue from the USA", a team led by Pedro Martins said in a note.

The PBOC will continuously implement a prudent and neutral monetary policy, refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and create a proper monetary and financial environment for the country to pursue high-quality economic development and advance the supply-side structural reform, it said. "Liquidity is not the issue".

Analysts say the yuan's decline has been driven mostly by China's slowing economic growth and the divergence between USA and Chinese interest rates.

On Monday, the spread between Chinese and USA 10-year Treasury bonds was 58.4 basis points, compared with 150 basis points at the end of 2017. "The narrowing interest rate differentials between China and the United States will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research. "Losses in the spot yuan rate reflected a weaker midpoint". China's yuan was weaker at 6.8979 per US dollar at 0333 GMT, compared with a previous onshore close of 6.8725 per dollar. The yuan weakened as much as 0.5 per cent.

Reflecting expectations of further yuan weakening, the one-year non-deliverable yuan futures in Hong Kong fell to the lowest level in 15 months, to 7.0095 against the dollar.

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