Economy

China cuts banks' reserve ratio to ratchet up support for 2019

China cuts banks' reserve ratio to ratchet up support for 2019

The reduction is being made in two equal stages, effective January 15 and January 25, the PBOC said.

The People's Bank of China (PBOC) has changed the definition of a small business, meaning an enterprise with a credit line of less than 10 million yuan (US$1.46 million) will qualify for targeted reserve-requirement ratio cuts, up from the previous standard of 5 million yuan.

In addition, the medium-term lending facility that will mature in the first quarter of 2019 will not be continued.

The latest reduction announced is the first all-inclusive RRR cut since March 2016.

The bank said in a statement that the measure will release 1.5 trillion yuan (about $218 billion) of liquidity into the market.

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. Hang Seng and Nikkei futures rose.

In 2018, China reduced RRRs four times to free up funds for banks to lend.

The key for the financial sector to serve the real economy is to cope with the need of keeping economic growth within a reasonable range and stabilizing employment, Li said.

Pre-Brexit hit as house price growth slowest since 2013
The average house price in the United Kingdom in December 2018 was £212,281 compared to £211,156 in December 2017. A home in the south of England averages £329,240, almost double the average of £166,642 for a place in the north.

Fears about China's economic health have already rattled financial markets.

The ratio for large lenders will be cut from 14.5 percent now to 13.5 percent.

A manufacturing purchasing managers' index released this week by Caixin dipped into contraction territory for the first time in 19 months, painting a gloomy outlook for the world's second largest economy, and effecting market sentiment. Early indicators for December signal the economic slowdown is deepening, after official data showed industrial production growth was the weakest in a decade and industrial profits fell for the first time in nearly three years in November.

A State Council executive meeting held on Christmas Eve called for strengthening support for small and medium-sized enterprises, as well as private businesses.

Lian Ping, chief economist at the Bank of Communications, said the pressure of the economic slowdown would show up in the first half of 2019 when the existing United States tariffs on US$250 billion of Chinese goods would bite deeper into the economy.

"How much can this help the economy remains to be seen", said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong.

The twisted and conditional liquidity support is part of the central bank's controversial plan to implement "targeted easing" which is aimed at ensuring funds will end up in hands of the right borrowers such as small factory owners. "This is a classic case of banking disintermediation amid the down cycle".


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