Wed | Jan 23, 2019

China moves to boost lending, reverse slowdown

Published:Thursday | February 5, 2015 | 12:00 AM

China on Wednesday cut the minimum level of reserves its banks are required to hold, in a new move to reverse a deepening economic slowdown.

The reduction will make more money available for lending and supporting small and rural enterprises, construction projects and other activity, the People's Bank of China said.

It said the amount of their deposits that China's commercial lenders will be required to hold in reserve will be reduced by at least 0.5 per cent. The reduction for rural banks will be bigger.

Analysts expected new stimulus measures after last year's economic growth slumped to a 24-year low of 7.4 per cent.

The move is the equivalent of adding about 600 billion yuan (US$96 billion) to the balance sheets of China's state banks, according to Mark Williams of Capital Economics. He said, however, that because of loan quotas and other regulatory restrictions, the direct impact on lending would be smaller than that.

"The move increases their capacity to lend by allowing them to hold more customer deposits for a given level of reserves," said Williams in a report.

China's waning growth, along with stagnation in Europe and Japan, was behind recent downgrades in forecasts for the global economy this year and next. Hoping to reverse economic malaise, the European Central Bank and Bank of Japan have launched unprecedented stimulus efforts.

Much of China's slowdown over the past three years has been intentional and the result of the ruling Communist Party's efforts to nurture more self-sustaining growth based on domestic consumption instead of exports and investment.

Chinese leaders have launched a series of targeted measures to prop up individual industries through higher spending on railway construction and other projects while trying to avoid a repeat of 2008's across-the-board stimulus which relied heavily on debt.

Manufacturing weakened in January, according to surveys by HSBC Corp and a Chinese industry group. The China Federation of Logistics and Purchasing said its purchasing managers' index fell to a 28-month low.

- AP