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China to cut amount banks hold in reserve, to boost lending

BEIJING (AFP) – China yesterday said it would next month cut the amount banks must hold in reserve in order to boost lending, state media reported, as officials look to reignite stuttering growth.

The decision comes with the world’s second-largest economy facing multiple headwinds, including a prolonged crisis in the property sector, sluggish domestic consumption and weakening foreign demand.

“People’s Bank of China Governor Pan Gongsheng said at a press conference of the State Council Information Office on January 24 that the reserve requirement ratio (RRR) will be lowered by 0.5 percentage points on February 5,” state broadcaster CCTV reported.

The move will provide “CNY1 trillion (USD140 billion) of liquidity to the market”, it added.

China last cut its RRR in September, by 0.25 percentage points to around 7.4 per cent.

The latest decision is “another step in the right direction, but monetary policy by itself is not enough to boost economic momentum”, President and Chief Economist at Pinpoint Asset Management Zhiwei Zhang told AFP.

PHOTO: AFP

“A more proactive fiscal stance focusing on consumption is more important and effective,” said Zhang.

“The allocation of fiscal resources to consumption instead of investment is critical, as China faces deflationary pressure.”

The central bank’s governor also said yesterday that more policies to offer support for the country’s struggling property sector would soon be announced.

China last year recorded one of its worst annual rates of growth since 1990, dampening hopes for a rapid economic recovery following the end of draconian COVID restrictions in late 2022.

The country’s gross domestic product expanded 5.2 per cent to hit CNY126 trillion (USD17.8 trillion) in 2023, national statistics authorities revealed last week.

The reading was an improvement on the three per cent recorded in 2022, when zero-COVID weighed heavily on activity, but it also marked the weakest performance since 1990, excluding the pandemic years.

China’s economy enjoyed an initial post-pandemic rebound, but ran out of steam within months as a lack of confidence among households and businesses hit consumption.

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