MNI Insight: PBOC Reacts To Smooth Market Nerves On Trade War

     BEIJING (MNI) - The People's Bank of China responded at a prompt pace to

stabilize market sentiment as the trade war between the biggest economic powers

gets real.

     Several high-ranking PBOC officials and advisors have made statements aimed

at playing down the effects of a trade war and boost market confidence by

reiterating the capability of the country to cope with any result of US tariffs.

     "The impact of U.S. tariff will be limited as the dependence of China's

economy on the outside world is low," Sheng Songcheng, a counselor to the

People's Bank of China who has served at the Chinese central bank for over 20

years, said in comments distributed to MNI over Wechat.

     "The tariffs would drag down Chinese exports by 0.75 percentage point,"

Sheng noted, citing research by Chinese Academy of Social Sciences (CASS), a

leading government think tank, stressing "China should keep its strategic

continuity and maintain prudent and neutral monetary policy to prevent risks."

     According to American media, President Trump told reporters Thursday the

duties on Chinese goods worth of $34 billion will go forward just after Friday

midnight and another $16 billion of goods could follow in two weeks, suggesting

the final total could eventually reach $550 billion.

     Ma Jun, a member of PBOC monetary policy committee and former chief

economist of the PBOC, said in comments to reporters over Wechat "The

implementation of the tariffs would slow Chinese GDP growth by 0.2 percentage

points and China is mulling over necessary measures to support sectors badly hit

to buffer the impact of the trade war."

     "The official start of the trade war would not necessarily have a big

impact on capital and forex markets," Ma said, explaining the trade spat has

basically been digested by the market after two months of discussions.

     Guo Shuqing, the Party Chief of the PBOC, was a rare strong voice during an

interview with Chinese Financial Times, a newspaper run by the central bank

Thursday.

     "The trade war will not be able to proceed," Guo said, "it will not affect

China's own reforms and opening up, and the country is confident going forward."

     The chief stressed China's economic fundamentals will dictate the yuan's

trajectory." As an emerging reserve currency, the yuan will tend to be stronger

as a whole," Guo said.

     Both stock and forex markets continued their weakness on Friday day. The

Shanghai Composite Index fell 0.34% to 2727.70 in the morning session, while

USDCNY slipped 0.44% to 6.6661 from Thursday's closing price.

     The PBOC has not replied MNI's questions on the trade war by Friday noon.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: sherry.qin@marketnews.com

[TOPICS: MAQDS$,M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]