China infuses GBP 14B emergency funds into banking system to bridge gap of cash supply position

Underlining the erupting problem of liquidity crunch in its financial system, the world's second largest economy's central bank the 'People's Bank of China' has released GBP14 billion emergency funds into the domestic banking system to support the cash supply mechanism.

The central bank is worried about the ongoing situation in the domestic market as the financial system falls short of the money supply. The continuous fall of stock markets has also become a cause of concern for the Chinese government.

The key decision followed the latest move of the Chinese government to slash interest rate. China lowered its interest rate by 0.25 percent to 4.6 percent on last Tuesday. This reduction in interest rate is for the fifth time since last November 2014.

However, the latest bout of financial support may not deliver the desired dividends in boosting the economy or arrest the downfall on the markets, observe financial analysts. The GBP14-bn funds support may not be sufficient to fill the gaps in the economy's slowdown. This is like a first-aid treatment when the patient needs surgery, commented an analyst at a financial spread betting firm.

The equities tumbled 43 percent on Chinese bourses since June this year. The Chinese government's efforts were not getting desired results in the wake of the slowdown in the economy. On the other hand, dragon country has failed to check the downfall on the markets.

Moreover, the decisions taken by the Chinese government and ongoing slowdown in the economy were the major reasons behind the crash across the global markets. It seems that gone were the days of 'Chinese miracle' in the global economy, feels an economist.

The magic formula of the Chinese government is losing its steam as every effort made by it couldn't produce the results.

Considering all these factors, the Chinese government seems to have reached a conclusion that it's better to allow the markets and financial system to run on their own. Analysts also opine that let the market forces decide the economy and markets where they supposed to be.

The Chinese government is finding it difficult to stabilize the huge economy with financial support or some other measures. If the government increases its support to markets, then it will dent public trust, said a political analyst at the University of Chicago.

The continuous fall in stock markets and slowing down of the economy have turned out to be a chaotic situation for the Chinese leadership.

The latest key decision by People's Bank of China signifies the alarming situation in the domestic economy and future direction of the market as the financial system is falling short of cash supply.