Beijing announces additional measures to stabilize the economy

According to a government statement released late Wednesday, the Chinese State Council's cabinet meeting on Wednesday announced a series of new measures aimed at stabilizing the economy, including stimulating consumption, supporting foreign trade and reducing the reserve ratio of commercial banks.

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

The COVID-19 pandemic is getting worse: Official data on Wednesday shows that in Shanghai, the country's economic hub, for example, another 2,573 new cases have been confirmed and 25,146 asymptomatic infections have been reported. The rapid spread of the infection and the reaction of the authorities to it are detrimental to the country's economy.

A meeting in Beijing on Wednesday chaired by Prime Minister Li Keqiang highlighted the role that consumption can play in "permanent" stimulus to the economy. Participants vowed to take support measures to help industries hard hit by the pandemic, including catering, civil aviation, tourism and transport.

It was also stated at the meeting that the central government will stimulate consumption in certain key areas, including sectors heavily dependent on steel, such as automobiles and household appliances. Local governments should not introduce any new restrictions on car purchases, and those with such restrictions already in place should work to gradually increase existing car purchase quotas. The meeting reiterated the need to increase sales of new energy vehicles and to encourage the construction of charging stations for drivers of such vehicles.

Meanwhile, he also promised to help foreign enterprises overcome trade difficulties, including using the "tool" of export tax rebates to promote imports and exports more effectively.

Importantly, the meeting signaled for the first time this year a reduction in reserve requirements for banks to "support the real economy, especially industries, small and micro enterprises and individual entrepreneurs, which have been severely affected by the pandemic."

This will increase the amount of liquidity in the market and reduce the cost of financing Chinese enterprises, although many believe that the reduction will be limited, since the reserve ratio has already fallen to a relatively low level by the end of 2021.

"The country's economic growth has been severely undermined by the onslaught of COVID, but as we are still targeting 5.5% GDP growth this year, the necessary steps need to be taken and timely action taken," said a futures analyst from east China's Shandong province.

An analysis by Yintech Tech, a Shanghai-based investment and financial services provider, found that the ongoing pandemic would reduce Shanghai's actual GDP growth by 10 percentage points and the country's GDP by 0.5 percentage points, even if quarantined due to COVID-19 will be gradually removed. relaxation since May.

The Chinese steel futures market reacted positively to the signals from Beijing, according to Mysteel Global. On Thursday, the most traded October rebar futures contract on the Shanghai Futures Exchange (SHFE) ended afternoon trading at 5,004 yuan/t ($786.6/t), reversing up 31 yuan/t, or 0.6% during the day.

The most traded SHFE hot coil contract for October delivery also turned up 30 yuan/t intraday to 5,160 yuan/t in afternoon trading.