China to cut reserve ratio by 50 basis points from January 6

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Published: January 1, 2020 5:10:27 PM

China's most important annual holiday is a time when companies and individuals typically need large amounts of cash on hand to pay bonuses, clear debts and cover other expenses.

While the trade war with the US has been a factor, more worrisome is flagging demand for autos and apartments and the continuing dominance of state companies sustained by generous government subsidies and preferential policies.

China’s central bank said Wednesday it will cut the amount of money banks will be required to have on hand from January 6 in an effort to boost the slowing economy. The People’s Bank of China announced that the reserve requirement ratio for financial institutions would be lowered by 50 basis points. The official Xinhua News Agency said that step will release about 800 billion yuan (USD 114.6 billion) into the economy for lending purposes, delivering a shot in the arm to the economy ahead of the Lunar New Year that falls on January 25.

China’s most important annual holiday is a time when companies and individuals typically need large amounts of cash on hand to pay bonuses, clear debts and cover other expenses. However, Xinhua quoted an unidentified central bank official as saying that Wednesday’s move does not presage a large-scale government stimulus program, ruling out the possibility of a “flood-like” flow of fresh money. “The stance of prudent monetary policy has not changed,” the official was quoted as saying. Beijing has adopted a string of market-opening measures and tariff cuts meant to help revive economic growth that slowed to a three-decade low of 6 per cent in the latest quarter.

While the trade war with the US has been a factor, more worrisome is flagging demand for autos and apartments and the continuing dominance of state companies sustained by generous government subsidies and preferential policies.

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