Ann: Quarterly Report December 2023, page-13

China – Government considering $280bn cash injection to stabilise crumbling stock market
China held its 1-year and 5-year Loan Prime Rate yesterday and then followed with news to prop up its equity market

• The Shanghai Composite Index hit a 5-year low with overseas funds selling $1.6bn of Chinese equities in January.
• The news lifted the index by 0.5% while the Shenzhen Component Index rose 1.38%.

• The move highlights how vulnerable Chinese markets are to overseas influence. The authorities are also considering other options.
• The one-year interest rate stands at 3.45%. Five-year rates are based on 4.2%. This is the basis for mortgage financing and refinancing.
• Chinese citizens have been slow to return to consumption and property buying since covid.
• There is some ‘speculation’ that more Chinese people are looking to move cash offshore and this may be driving Bitcoin and possibly some other crypto currencies.
• The PBoC has been looking to slow the exodus of funds out of China with the US dollar gaining 5.6% on the Yuan over the past year.
• The Yuan’s fall was not helped by a 4.6% fall in exports to $3.38tn led by price falls in rare earths and aluminium.
• A 13% fall in exports to the US led the decline as higher US interest rates combined with the reshoring of component manufacturing and a degree of global uncertainty with the war in Ukraine.
• Deflation: China is working to contain deflationary pressures despite better-than-expected GDP of 5.2%.
• CPI fell by 0.3% yoy in December though this was not as dramatic as the 0.5% fall for November. 2023 CPI rose by just 0.2% with National Bureau of Statistics of China
• Core consumer prices, excluding food and energy, increased 0.6% yoy in December.
• Property prices may well fall this year if the PBoC does not drop rates causing further deflationary pressure.