China orders more lending to entrepreneurs amid trade spat

China pumps USD 109 billion into economy as trade war bites on growth

"An RRR cut is not enough to counter the impact of the trade war".

China's effort to support its decelerating economy is heaping pressure on the yuan, signaling challenges for Beijing as it tries to stimulate growth without triggering destabilizing capital outflows. "All news is against it", Fraser Howie, an independent analyst who has written books about China and its financial system, told CNBC's "The Rundown" on Monday.

The People's Bank of China (PBoC) has cut the reserve requirement ratio (RRR) for most banks by 100bps, effective from October 15. But the central bank maintained that its monetary policy is still prudent and neutral - not accommodative.

POLICY DIVERGENCE China's RRR cut reinforces expectations of more policy easing ahead, putting China on a divergent path of monetary policies with the United States, where 10-year treasuries yields hit seven-year highs as the Federal Reserves keeps raising rates. That said, amid a worsening trade-war outlook, negative sentiment around China's economy and a surging US dollar could yet test the nation's defenses.

However, Stephen Innes, head of Asia-Pacific trading at OANDA, said: "It's not too much of a stretch to assume markets should expect more policy easing measures and increased infrastructure spending".

Zeng Gang, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences, said using the RRR cut to replace the MLF operation could optimize the maturity structure of credit, allow financial institutions to access long-term funds steadily and therefore reduce the financing costs of the real economy.

Monday was the first chance for mainland investors to react to the escalating trade tensions and a sell-off in Hong Kong markets last week after a week-long holiday on the mainland to celebrate National Day.

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China's economic growth rate slowed slightly to 6.7 percent in the second quarter year-on-year, still well above the government's full-year target of around 6.5 percent. Some market participants also said they were unwilling to hold large positions for their proprietary trade, amid global market uncertainty, during China's coming lengthy public holiday.

The line has hit China's securities exchange and money, and there are conditional signs it is influencing China's economy.

The three core stock indexes on the mainland, the Shanghai Composite, Shenzhen Component and Growth Enterprise Market benchmarks declined 3.72 percent, 4.05 percent and 4.09 percent.

"China is a bit nervous".

But Nicholson noted that if the trade situation deteriorates further, China will have a number of levers to save its economy because President Xi Jinping has "political capital".

"I mean President Xi, if you think about it, he doesn't have to worry about another election in six months, 12 months, 18 months".

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