Shoppers wait for their ride near a store decorated with a dragon motif ahead of the lunar Year of the Dragon, in Beijing, on Jan. 22.Ng Han Guan/The Associated Press
China’s central bank said Wednesday it will cut amount of reserves it holds for banks as part of a slew of measures to support the slowing economy.
The announcement by the governor of the People’s Bank of China prompted a surge in share prices, with Hong Kong’s benchmark jumping 3.6 per cent.
Chinese stock markets have languished in recent months as investors pulled money out, discouraged by a faltering recovery from the shocks of the COVID-19 pandemic.
A sell-off earlier in the week was followed by unconfirmed reports that the government planned to get state-owned investment companies to funnel offshore funds into the markets to help staunch the losses. The central bank’s moves appear to be part of a concerted effort to stabilize the markets and instill greater confidence in the outlook for the world’s second-largest economy.
Central bank Gov. Pan Gongsheng told reporters in Beijing that the deposit reserve requirement would be cut by 0.5 percentage points as of Feb. 5. Pan said that would inject about 1 trillion yuan ($141-billion) into the economy. As of December, the reserve requirement ratio was 7.4 per cent.
Unlike bank reserves – the cash banks must keep on hand to cover unexpected demand – these reserves are held by the central bank and used mainly as a monetary policy tool.
Such changes are usually conveyed in a written notice by the central bank, not at a news conference.
Pan said the central bank also plans to issue a policy soon on lending to property developers to help support the industry.
China’s economy is recovering, he said, allowing ample room for policy manoeuvres.
“At present, our country’s financial risks are generally controllable, the overall operations of financial institutions are sound, and financial markets are operating smoothly,” the government website China.com cited Pan as saying.
The economy expanded at a 5.2 per cent annual pace in the October-December quarter, enabling the government to attain its target of about 5 per cent annual growth for 2023. But the recovery remains uneven, and most forecasts say the economy will grow more slowly in 2024.
Chinese leaders have been talking up the economy in an all-out effort to counter such expectations.
Initial reactions were cautious.
Mark Williams of Capital Economics said the latest moves would “provide only a small boost for China’s economy.”
“Meaningful improvements in household or corporate borrowing would require substantial rate cuts or a significant change in economic sentiment. Neither seems likely in the near future,” he said in a commentary.
The slow pace of the recovery after China dropped stringent anti-virus precautions in late 2022 has added to gloom over a crisis in the once-booming property market as dozens of developers defaulted on loans after the government cracked down on excessive borrowing a few years ago.
That has left many Chinese families who had invested their life savings in unbuilt homes in limbo, unsure if the developers would deliver those apartments.
There have been some signs of improvement: Last week, the government resumed its reporting on the rate of unemployment among young people, which stood at a record 21.3 per cent in June. According to a revised methodology, the latest youth unemployment rate was 15 per cent. Overall unemployment stood at 5.1 per cent.
Many youths also were left without work after the government cracked down on technology companies, which tended to hire younger workers. More recently, moves to impose more controls on online gaming spurred massive sell-offs of game company shares, leading the authorities to apparently backpedal on that plan.
The Federal Reserve and other major central banks have been raising interest rates and finding other ways to raise the cost of borrowing to help stem inflation, which peaked at 9.1 per cent in mid-2022 in the United States. Central banks are now easing their monetary policies as price pressures abate.
In China, regulators are grappling with the opposite problem, a risk that weak demand will cause prices to spiral lower, discouraging investment and hobbling growth. The moves by the central bank this week will ease credit and pump money into the economy to try to spur businesses and consumers to start spending more.
China’s loan prime rate is now 3.45 per cent. It’s the lending rate commercial banks give their highest quality customers and is a benchmark for other loans. The Federal Reserve’s benchmark rate is about 5.4 per cent.
The central bank cut the reserve requirement twice in 2023, by 0.25 percentage points each time. A key policy tool for controlling the amount of money circulating in the economy, it peaked at more than 20 per cent in 2011 and now is at its lowest level since the early 2000s.
“The authorities will likely launch more measures to stabilize market sentiment, such as mobilizing state resources to support the stock market,” Raymond Yeung of ANZ said in a report. “The authorities are clearly concerned about market sentiment.”
He noted that the central bank is also acting to avoid a weakening in the Chinese currency, the yuan. Pan told reporters in Beijing that the PBOC would ensure the yuan’s value remains stable.
Like many other analysts, Yeung said the latest moves might not be enough to fully reassure investors and that more needs to be done to foster wider reforms.
“This requires some structural measures to boost private sector confidence and the long-term outlook of the real estate sector,” he said. “The measures announced so far do not seem sufficient.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
