China cuts banks' reserve ratios by 1% as economy slows

16 2018 shows a traffic jam at a crossroad in the city centre of Beijing at night

Image People's Bank of China acts to support economic growth

China International Capital Corp said that may release as much as 400 billion yuan of liquidity. The reserve requirement ratios are now 14.5% for large banks and 12.5% for smaller banks.

The order from Li to the central bank, which is part of the Chinese government, showcased Beijing's willingness to go further in policy easing to keep its economic growth on track.

The required reserve ratio for banks will drop by 0.5 percentage point on January 15 and a further 0.5 percentage point on January 25, the People's Bank of China said on its website. In addition, corporate tax payments and maturing interbank debt of many lenders will add to the liquidity crunch in the days leading up to the Lunar New Year.

If a bank can prove it has followed instructions from the central bank, including lending more to small businesses, it will be allowed to place smaller reserves at the PBOC so that it will then have more funds to lend.

The cuts will be effective January 15 and January 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight.

Christian Pulisic excited making Chelsea move
But the German press have ridiculed the move, suggesting Chelsea have been ripped off for a "positionally limited" player. Pulisic becomes the second most expensive outfield player in Chelsea's history, after striker Alvaro Morata.

PBOC's targeted liquidity support to certain institutions for special objective use - such as providing long-term cheap funds to the China Development Bank to finance subsidised housing - has edged towards bankrolling projects favoured by the government. At the Central Economic Work Conference in December, Chinese leaders indicated their intention to enact further monetary easing measures.

China reported on Monday that factory activity shrank last month for the first time in more than two years, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington.

China's leadership has emphasised the need to "stabilise" growth and employment in 2019, and the central bank is a key institution to achieve this.

China is taking new steps to encourage bank lending and stimulate the country's flagging economy. But tighter liquidity conditions are possible before the Spring Festival in early February, they said, which requires proper liquidity operations from the central bank to prevent volatility and maintain lower market interest rates.

In the same survey, an index that indicated bank loan demand in small and micro-enterprises increased to 67.9 in the fourth quarter, up from 67.1 in the third quarter, and it is also higher than the indices for medium-sized and large companies, reflecting small-scale businesses' stronger desire to obtain credit.

Latest News