"A cut of 1 per cent by the Chinese central bank was unexpected because it would "release something like 700 billion yuan (approximately $101.72 billion)" into the country's banking system", Francis Lun, the CEO of Geo Securities, said.
The cut will fill in the liquidity gap of banks and put no downward pressure on the yuan, the central bank said in a statement, as the country's monetary policy has not been eased.
The fall in Chinese equities comes just a few days after the United States bank JPMorgan cut its outlook from overweight to neutral on the country's stock market as a result of the likely negative impact of the trade war on the country's growth.
However, Beijing has refused to yield to US complaints that the Chinese government steals or pressures foreign companies into handing over technology.
The RRR cut would not create depreciation pressure on the yuan, the PBOC said, adding that the central bank would keep the foreign exchange markets stable.
The announcement of the relaxing the RRR requirement for the banks, which are also saddled with the huge local government debt of Dollars 2.58 trillion comes amid deepening trade war with US and raising of the interest rates by US Federal Reserve, intensifying the pressure on capital outflows.
Explosion reported at Irving Oil refinery in Saint John
Residents described feeling an explosion shortly after 10 a.m. 'We're sitting here and watching it burn right now, ' he said. Residents near the crude oil processing plant have reported hearing loud explosion coming from the 780 acre site.
"The trade war's impact on the economy is showing".
Stocks and bonds traditionally have been in a tug of war for capital, but for the past 10 years bonds have had one arm tied behind their back, said Jack Ablin, chief investment officer and founding partner at Cresset Wealth Advisors in Chicago. "The RRR cut will help but the China economy will need more monetary policy persuasion to snap its current funk".
Total tax cuts for the year are expected to exceed 1.3 trillion yuan ($188 billion), according to Liu.
"Some regions and companies have been hit [by trade frictions], but China has the ability to minimize the impact", Mr. Liu was quoted as saying. They pledged to pump billions of dollars into infrastructure projects, shored up the currency, and moved to backstop the stock market.
These cuts follow a year of lackluster momentum in the economy as the government tried to rein in its high levels of debt through tax cuts, infrastructure spending and weak monetary policy, in addition to growing pressure from U.S. trade tariffs.
"China is moving towards a more mature economic model from the one that has driven its remarkable growth in the last 20 years and experiencing growing pains in the process", she added. He said China was in a liquidity trap where there was a shortage of credit demand from the real economy, meaning that "the issue is the loss of market confidence". However, some key activities have abated more steeply. The July nationwide jobless rate rose to 5.1 per cent.
"The external environment is becoming tougher and we can not rule out further RRR cuts", he said.