This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- China local analysts forecast that 500 to 700 billion yuan liquidity will be added after the RRR cut.

- The country plans to spend 100 billion yuan annually to help manufacturing industries reduce production

- China set up the first market-driven fund for railway construction projects.

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PBOC News: China’s Central Bank

- China’s Central Bank announced it will cut reserve requirement ratio (RRR) by 50 basis points (0.50%) in an effort of providing sufficient liquidity to the financial system.

Hexun News: Chinese leading online media of financial news

- Hexun News produced a summary of local analysts’ comments on the RRR cut.

  • Huatai Securities: Approximate 700 billion yuan liquidity will be released to the market after the RRR cut.
  • China Securities: RRR is expected to be cut five times or more in 2016.
  • Minsheng Securities: RRR cut will release 500-600 billion yuan to the market. It has a positive impact on the stock market, though the effect may not prove lasting.
  • Yinda Securities: RRR cut helps to stabilize the economy and the equity market. 2638 points will the bottom of the Shanghai Composite Index in 2016.
  • National Business Daily: The rate cut could add 650 billion yuan liquidity into the market. It will benefit both the equity and the housing markets.
  • Peking University Research: The deflation risk is the most serious challenge that China faces right now. The rate cut can help to ease the risk.
  • Haitong Securities: The rate cut will increase approximately 600-700 billion yuan liquidity.

- China will spend 100 billion yuan per year for 4 to 5 years in the effort of helping manufacturing industries reduce excess production and relocate workers in these industries. From 2016, China plans to cut 100 to 150 million tons of steel production over the following five years and cut 500 million tons of coal production over the coming three to five years. Consequently, 1.3 million workers in the steel industry and 500 thousand workers in the coal industry will need to be relocated.

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- China established the first province-level fund for railway construction projects, with a total amount of 27.6 billion yuan. China’s railways are built and owned by either the central government or local governments. In order to meet the country’s development plan for railways, local governments will need to invest in the railway projects though they may not have enough funding for them. Thus, introducing railway funds can help local governments to borrow for these projects and also improve the government efficiency as the funds are more market-driven.

China Stock News: Chinese leading online media of financial news

- China Stock News summarized the cuts in the reserve requirement ratio and the benchmark lending rate in 2015.

On February 4, PBOC lowered the ratio by 0.5% to financial institutions. It also cut an additional 4% on the rate to Agricultural Development Bank of China.

On March 1, the Central Bank cut the RRR by 0.25% to 2.5%. It also cut the one-year benchmark lending rate by 0.25% to 5.35%.

On April 20, PBOC cut the RRR by 1% to all financial institutions, while financial institutions in rural areas received an additional 1% rate cut.

On May 11, China’s Central Bank lowered the RRR by 0.25% to 2.25% and the one-year benchmark lending rate by 0.25% to 5.1%.

On June 28, the Central Bank cut the lending rate by 0.25% and lowered the RRR on targeted institutions by 0.5%.

On August 26, the RRR was cut by 0.25% to 1.75%. One-year benchmark lending rate was cut by 0.25% to 4.6%.

On October 24, the RRR was cut by 0.25% to 1.5% and the one-year benchmark lending rate was cut by 0.25% to 4.35%.

Written by Renee Mu, DailyFX Research Team

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