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The great China Crash

Last week the indices of stock exchanges in Shanghai and Shenzhen lost 11%, and this week began with the cancellation of growth this year. The main reason is that investors had expected the central bank to reduce its requirements for bank reserves. So would free up funds to pour liquidity to raise stock prices and help the slowdown in industrial sector of China.

More weekend representatives of the International Monetary Fund said the slowdown in Chinese growth and the stock market crash signal not a crisis, but “necessary” adjustment of the second largest economy in the world. “In recent years monetary policies were very expansive and adjustment is necessary,” said Executive Director of the Fund Carlo Korateli, quoted by Reuters. “It is absolutely premature to talk about a crisis in China,” he said, confirming the forecast of the International Organisation for 6.8% growth of the Chinese economy this year amid progress in 2014 growth by 7.4%. “The Chinese economy is slowing, but it is quite normal for this to happen. What happened in recent days was a shock in financial markets, which is normal,” said he on Saturday.

Meanwhile, accelerating the sale of the capital markets in recent days increased pressure on regulators to increase liquidity in the system. According to official sources and advisors to the Chinese central bank cited by the Wall Street Journal, Beijing intends to pour into the financial system more than 100 bln. Dollars to support lending and reduce the risk of capital outflows from the country. The plans are the steps to be taken by the end of August or in early September, as for the purpose required by the central bank minimum reserve requirements of banks will be reduced for the third time this year – this time by about half a percentage point. This would free up funds worth 678 billion. Yuan (106.2 billion. Dollars), which could be used for lending. It is however possible measure to be applied only to banks that lend to small private businesses.