China cuts RRR by 20 points, ramps up manufacturing to full capacity to makeup coronavirus losses

China, which came to a standstill due to the coronavirus outbreak for over two months, cut the Reverse Repo Rate (RRR) by 20 basis points on Monday to facilitate more lending as the world's second largest economy ramped up the manufacturing sector to almost 100 per cent of its capacity to make up for big losses.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

China's manufacturing sector has steadily resumed production after the shutdown due to COVID-19, with 98.6 per cent of the major industrial firms nationwide having restarted work as of Saturday, the Ministry of Industry and Information Technology (MIIT) said on Monday.

Xin Guobin, vice minister of the MIIT, told the media here on Monday that around 89.9 per cent of the employees in industrial companies with an annual revenue of more than 20 million yuan (about USD 2.84 million) had returned to their posts.

In the coronavirus epicentre Hubei province, which is gradually returning to normal after the virus abated, the average work resumption rate of industrial firms have surpassed 95 per cent by far, state-run Xinhua news agency reported.

The production and operation of large pharmaceutical companies producing vitamins, antibiotic, antipyretic and analgesic ingredients have returned to normal, Xin said.

Meanwhile, 76 per cent of small and medium-sized enterprises have restarted to work nationwide.

Some 92 leading enterprises in key industries have helped boost the work resumption of more than 400,000 their upstream and downstream enterprises, Xin said.

Separately China's central bank on Monday pumped liquidity into the market through seven-day reverse repos while cutting the interest rate by 20 basis points to lower lending costs and offset the economic shock of COVID-19.

The People's Bank of China (PBOC) injected 50 billion yuan (about USD seven billion) into the market through the seven-day reverse repos at an interest rate of 2.2 per cent, the central bank said in a statement on its website.

Before Monday's move, the PBOC has skipped reverse repos for 29 straight trading days, the Xinhua report said.

Ma Jun, a member of the monetary policy committee of the PBOC, said the RRR cut indicates that the central bank has strengthened counter-cyclical adjustments in the face of production resumption at home and a worsening

external economic environment.

Cutting the reverse repo rate would help lower lending costs for the real economy, said Ma, who believes that adjustments in monetary market rates are now better reflected on market lending rates thanks to the reform of loan prime rate (LPR).

Wen Bin, a chief researcher with China Minsheng Bank, said the 50 billion-yuan reverse repos would help meet short-term market liquidity demand.

The PBOC also pledged on Friday after a regular meeting of its monetary policy committee to improve its macroeconomic control to limit the fallout of the COVID-19 outbreak and better shore up its economy.

Aside from Monday's rate cut, China still has ample monetary policy space and tools at disposal, Ma said, noting that China remains the only major economy that keeps a normal monetary policy and is able to enhance counter-cyclical adjustments with regular operations.

Also China on Monday said it will lift foreign ownership limit on securities companies in a bid to attract more foreign investments.

The limitation on foreign stakes in securities firms in China is scheduled to be scrapped on April 1 as the country moves ahead with opening its financial industry to foreign investors, according to the top securities regulator.

Eligible foreign investors can file applications for the registration of new securities firms or change of the actual controller of existing ones in accordance with applicable laws and regulations after the new regulation goes into effect, the China Securities Regulatory Commission said.

China suffered hundreds of billions of dollars of losses as it virtually shut the country and closed almost all the factories for over two months to prevent the spread of the coronavirus which emerged in central Chinese city of Wuhan.

While it kept the coronavirus epicentre Hubei province with over 56 million people under lockdown since January 23, it began easing curbs in the last few weeks all over the country.

Hubei too started opening up after drastic fall in cases.

China on Monday reported 31 new cases of coronavirus including 30 imported ones while the death toll reached 3,304 with four more fatalities, health officials said.

The overall confirmed cases on the mainland has reached 81,470 by the end of Sunday.

This included 3,304 people died of the disease, 2,396 patients still being treated and 75,770 patients discharged after recovery.