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China unveils rate reform to steer funding costs lower for firms

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China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.

The People’s Bank of China (PBOC) said it will improve the mechanism used to establish the loan prime rate (LPR) from this month, in a move to further lower real interest rates for companies as part of broader market reforms.

Analysts say the move, which came after data that showed weaker than expected growth in July and followed a cabinet announcement on Friday, underscores the government’s attempts to use reforms to support a slowing economy.

“By reforming and improving the formation mechanism of LPR, we will be able to use market-based reform methods to help lower  real lending rates,” the PBOC said in a statement published on its website.

The central bank will “deepen market-based interest rate reform, improve the efficiency of interest rate transmission, and lower financing costs of the real economy,” it said.

Chinese banks’ new LPR quotations will be based on rates of open market operations, and the national interbank funding center will be authorised to publish the rate from Aug. 20, the PBOC said. It added the rate will be published every month on the 20th, effective this month.

Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates, the PBOC said, adding that banks will be barred from setting any implicit floor on lending rates in acoordinated way.

The central bank said five-year and longer tenors will be added to the existing one-year LPR, which will help banks set rates on long-term loans such as mortgages.

China will add eight small banks, including two foreign-funded banks, to the existing 10 nation-wide banks that will be allowed to submit LPR quotations, the central bank said.

The move followed pledges from China’s State Council on Friday that the country will rely on market-based reform measures to help lower real interest rates for companies.

The central bank said that it will strengthen its supervision on banks’  rate quotations and punish banks for irregularities that disrupt the market order.

The central bank will incorporate LPR application into its macro-prudential assessment (MPA) to urge banks to use LPR pricing.

Sharper Slowdown

This week’s data broadly showed China’s economy stumbled more sharply than expected at the start of the third quarter, as the intensifying trade war with the United States took a heavier toll on businesses and consumers.

Second-quarter economic growth slowed to a near 30-year low. Tang Jianwei, an economist at Bank of Communications in Shanghai, said the reform could be seen as a guided rate cut as PBOC can guide rates of its open market operations, which will be closely followed by the LPR.

“The tool (LPR quotation reform) equals to a guided rate cut, and is only pushed out by the PBOC at crucial moments,” said Dai Zhifeng, analyst with Zhongtai Securities Co.

The central bank has pledged to gradually unify two interest rate “tracks” – its market-based rates developed in recent years and its benchmark bank deposit and lending rates.

Analysts say the new LPR rate will be lower than the current level, but they are divided over the scope of reductions on borrowing costs for firms.

To free up funds for lending and to accommodate local government project financing, most analysts still expect the central bank will cut banks’ reserve requirement ratios (RRR) further in coming months, on top of six reductions since early 2018.

Sources have told Reuters that more aggressive action such as interest rate cuts are a last resort, as it could fuel a sharper build-up in debt.

In July, central bank head Yi Gang said China would keep its benchmark deposit rate for a relatively long time, but would phase out its benchmark lending rate in the push to unify the benchmark lending rate and market-based rates.

China’s banks currently price their loans based on the benchmark lending rate that has been kept unchanged since October 2015, hampering the central bank’s efforts to lower borrowing costs.

The PBOC launched the LPR in 2013 to reflect rates that banks charge their best clients. But the LPR has been reacting little to market demand and supply, with the one-year rate currently at 4.31%, versus benchmark one-year lending rate of 4.35%.

China’s short-term money market rates have been falling more quickly in recent months due to the central bank’s cash injections.

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US warnings about China are lies, Foreign Minister Wang says

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Chinese Foreign Minister Wang Yi makes a speech during the 56th Munich Security Conference at Bayerischer Hof Hotel in Munich, Germany on February 15, 2020.

Abdulhamid Hosbas | Anadolu Agency via Getty Images

MUNICH — China’s Foreign Minister Wang Yi said Saturday that U.S. criticisms of Beijing were “lies” and blamed Washington for the tumultuous relationship between the world’s two largest economies.

“The root cause of all these problems and issues is that the U.S. does not want to see rapid development and rejuvenation of China, still less would they want to accept the success of a socialist country, but that is not fair, China has the right to develop,” Wang said during a discussion at the Munich Security Conference.

“China’s drive towards modernization is an inevitable trend of history and will not be held back or stopped by any force in the world because it represents the direction of human progress,” he added.

Wang’s comments at the Munich Security Conference followed those of Secretary of State Mike Pompeo and Secretary of Defense Mark Esper, both delivering back-to-back speeches accusing China of malign activities.

“China encroaches on the exclusive economic zones of Vietnam, the Philippines, and Indonesia. And on that point, China has had a border or maritime dispute with nearly every nation bordering it,” Pompeo told an audience at the security forum. “And let’s talk for a second about the other realm, cybersecurity. Huawei and other Chinese state-backed tech companies are Trojan horses for Chinese intelligence,” he added.

Esper said Beijing was caring out a “nefarious strategy” through telecommunications firm Huawei. “It is essential that we as an international community wake up to the challenges presented by Chinese manipulation of the long-standing international rules-based order,” he warned.

Secretary of Defense Mark Esper speaks at Munich Security Conference on February 15, 2020.

Munich Security Conference | Kuhlmann

When asked about the speeches made by Pompeo and Esper, Wang dismissed U.S. criticisms and said that Beijing would continue to seek a better relationship with Washington.

“This has become a common scenario, they say basically the same thing everywhere they go about China, and I don’t want to waste our time responding to each and every thing they’ve said. The thing I want to say is that all these accusations against China are lies and not based on facts,” Wang said of Pompeo and Esper’s comments.

“The most important task for China and the U.S. is to sit down together, have a serious dialogue and find a way for two major countries with different social systems to live in harmony and interact in peace. China is ready and we hope the U.S. will work with us in the same direction,” he added.

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Coronavirus live updates: Taiwan confirms first death

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Excited passengers disembark from the MS Westerdam, which is now docked in Sihanoukville, Cambodia. The cruise ship arrived in Cambodia on February 14, 2020 after being stranded for two weeks

Paula Bronstein | Getty Images

This is a live blog. Please check back for updates.

All times below are in U.S. Eastern Standard Time.

China’s National Health Commission reported that there were 2,009 new confirmed cases of the coronavirus and 142 additional deaths as of Feb. 15. The total number of cases in mainland China has reached 68,500, and the total deaths has reached 1,665, according the latest statistics from the commission on Sunday.

6:21 am: Taiwan confirms death of man with no known history of travel to China

Taiwan said a man in his 60s with a history of hepatitis B and diabetes has died of the virus. It’s the first death on the island. The man died Saturday after nearly two weeks in a hospital, but does not have a known history of traveling to China.

Health officials are investigating how he became infected. Taiwan has 20 confirmed cases of the virus.

3:40 am: American from cruise ship tests positive for second time in Malaysia

An 83-year-old American woman who was previously aboard the MS Westerdam cruise ship in Cambodia last week has tested positive for the virus a second time since flying back to Malaysia, officials there said on Sunday. She was one of 2,257 passengers and crew onboard at sea for nearly 14 days, and the first to test positive for the virus.

Officials said that more than 140 of the passengers on the ship traveled through Malaysia’s Kuala Lumpur airport, and all but eight traveled on to destinations in the U.S., Europe and Australia.

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Libya arms embargo a ‘joke,’ says UN official

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A fighter loyal to Libya’s U.N.-backed government (GNA) gestures during a clash with forces loyal to Khalifa Haftar at the outskirts of Tripoli, Libya May 21, 2019.

REUTERS | Goran Tomasevic

Violations of an arms embargo in Libya have become a joke and it is imperative that those who breach it are held to account, a senior U.N. official said on Sunday.

“The arms embargo has become a become a joke, we all really need to step up here,” U.N. Deputy Special Representative to Libya Stephanie Williams told a news conference in Munich.

“It’s complicated because there are violations by land, sea and air, but it needs to be monitored and there needs to be accountability.”

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