A report claimed that China's A-share market would cut down interest rates and continue making policy reforms in its policy market. The report also manifested that China is imposing the investment strategy by 2020 to boost capital spending and increase foreign investments into the country.
According to China.org.cn, a report published by CSC Financial, a Chinese investment bank, announced that China would impose an interest rate decline as a counter-cyclical adjustment to its capital market policies. The said reform would be the focus of the policymakers for the year 2020 and that the application would increase the valuation of China's stock market.
The policy changes were also revealed to lower financing costs for foreign companies especially those involved with the technological industries such as communications, computers, and media. The report also showed that China is expected to deepen its capital market reforms to transition itself as being a Nasdaq-style STAR board into a new third-board economy.
It was further discussed that the lowering of interest rates for foreign investments would serve as a counter-cyclical adjustment that would provide support for commodities in the following year's first few months. It was also revealed that it would create business opportunities for players in the manufacturing and construction industries which are among the cyclical industries targeted by the reform.
Moreover, it was also discussed that the development of direct financing and top brokerage firms would generate stronger investment banking capabilities at lower interest rates. The report claimed that the changes would make these firms perform better in 2020 and would attract more investments into different industries.
In other news, Xinhua revealed that China's overnight lending rates also rose 62 percent higher than the US. It was revealed in the report that one of the reasons for the competitive advantage over the US is the secured Shanghai Interbank Offered Rate (SHIBOR) interest rate. It was shown that Chinese banks offered domestic banks to borrow money overnight to improve their liquidity.
The report then claimed that overnight, the liquidity of Chinese banks improved drastically and that about half of a percent current values rose to 2.51 percent by December 12, 2019. It was then compared to the US's overnight bank-to-bank lending rate which was at 1.55 percent only. Thus, the report concluded that Chinese banks are now paying more to their borrowers than US banks regarding overnight liquidity.
However, it was also revealed that the International Monetary Fund cautioned China about lowering the interest rates as this would lead to inflation. It was then explained that interest rates to loan money from banks increases the risk for the borrower and that due to a rising savings rate of China, it could lead to balance-of-payments crises.
