China Secures 500 Billion Yuan for Struggling Economy

China announced on Friday that it will again lower the reserve requirement ratio for banks, the second time this year, thereby releasing 500 billion yuan (69.8 billion dollars) of long-term liquidity to support the struggling economy.

The reserve requirement ratio for banks will be reduced by a quarter of a percentage point starting December 5, the People’s Bank of China announced. This will lower the average weighted reserve ratio of financial institutions to 7.8 percent, they added.

The new reduction was expected after state media reported on Wednesday that the government would seek to maintain adequate liquidity through a well-timed reduction in the reserve requirement ratio, along with other monetary policy tools.

The central bank had already lowered the rate in April, also by a quarter of a percentage point, Reuters reminds us.

The People’s Bank of China is pursuing a cautious policy, aiming to support the struggling economy while avoiding a significant reduction in interest rates that could increase inflationary pressures and potentially trigger capital outflows from China.

The U.S. Fed and central banks of other major economies, including the European Central Bank (ECB), are raising interest rates to curb high inflation.

The Chinese economy significantly slowed down in October, and the latest wave of coronavirus infections has further fueled concerns about growth at the end of the year, given the crisis in China’s real estate market and weaker global demand for Chinese goods.

Chinese cities have imposed quarantines and other measures to curb the repeated rise in infections, dampening economic prospects and hopes that the Asian giant will soon significantly ease its strict COVID suppression policy.

In recent months, the government has taken a series of measures to support growth, focusing on infrastructure spending and limited support for citizens, while easing financing restrictions for the real estate sector.

In the first three quarters of this year, the economy grew by only three percent, significantly weaker than the targeted annual rate of 5.5 percent, notes Reuters.