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Montevideo, July 14th 2020 - 08:10 UTC

 

 

China pumps an extra US$ 115bn stimulus to the economy effective Monday

Saturday, January 4th 2020 - 09:18 UTC
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China's latest stimulus effort is a cut to the so-called reserve requirement ratio, the amount of money that commercial banks are required to stash away China's latest stimulus effort is a cut to the so-called reserve requirement ratio, the amount of money that commercial banks are required to stash away

China moved to pump more cash into its financial system, suggesting that Beijing remained concerned about faltering growth despite signs that the world's second-largest economy was stabilizing.

China's central bank, the People's Bank of China, announced that it would inject about US$115 billion into the economy by freeing up banks to lend more money. The move comes after a similar action in September.

The change, announced on the New Year's Day holiday, is likely to focus renewed attention on the health of the Chinese economy, a major driver of global growth. The move is relatively modest given the vast size of the Chinese economy, but the timing suggests that the country's leaders are on high alert for new evidence of a slowdown. It follows a recent meeting of the country's top economic planners and comes just weeks before Beijing releases closely watched estimates of year-end growth.

China's leaders are contending with the country's slowest pace of growth in nearly three decades.

The country's slowdown has sent ripples through the global economy. Germany narrowly avoided a recession last fall, and its manufacturing sector has slumped in part because of reduced demand from China. Other European countries have also seen growth slow and their industrial sectors contract.

China's struggles have spread to much of the rest of Asia, where it is the dominant economy, and also to Africa and Latin America, which have become increasingly reliant on Chinese imports and investment. Australia, which has experienced a prolonged boom driven by Chinese demand for its natural resources, is now seeing its growth streak threatened.

Other major central banks have also taken steps to shore up their economies. A few months ago, the European Central Bank announced its own stimulus package, totaling 20 billion Euros per month. In the United States, the Federal Reserve cut interest rates three times last year to prevent the manufacturing slowdown from spreading to the rest of the economy. Dozens of other central banks around the world have taken similar steps.

China's latest stimulus effort comes in the form of a cut to the so-called reserve requirement ratio, the amount of money that commercial banks are required to stash away for a rainy day. The cut reduced the requirement ratio by 0.5 percentage points, to 12.5% for large banks and will take effect next Monday. It will effectively allow banks to lend an additional 800 billion Yuan.

Beijing has been trying to pare down the country's dependence on borrowing, which helped fuel heady growth in recent years but left big debts on the balance sheets of major corporations and local governments. Reducing that dependence could help prevent major problems down the road, but at the cost of slower growth in the near term.

Some recent signs had suggested that China's slowdown was easing. November figures for industrial output and retail sales had indicated the economy was strengthening. The property market, an essential part of the Chinese economy that in recent months had been holding back growth, also appeared to be improving.

In the cut announced economists see Beijing as trying to find middle ground between supporting economic growth without resorting to more aggressive steps that could rev the economy further but saddle the country with even more debt.

The cut is not unusual so early in the year before China's Lunar New Year holiday, which begins this year on Jan 25, and when demand for cash intensifies. The central bank made a similar cut about a year ago.

China's most recent cut reduced the requirement ratio by 0.5 percentage points, to 12.5 per cent for large banks.

Categories: Economy, Politics, International.

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