China's central bank to cut cash reserve rates by 0.5 percentage points

Out-Law News | 11 Jun 2014 | 11:16 am | 2 min. read

The People's Bank of China (PBoC) is to cut the proportion of cash which some banks must lodge with it by 0.5 percentage points, the state press agency Xinhua has reported.

The cut to reserve requirement ratios (RRRs) will apply to some banks engaged in proportionate lending to agricultural and small firms and take effect from 16 June, a statement released by the People's Bank of China said, according to Xinhua.

The PBoC, which is China's central bank, has released details of the cut after the China Banking Regulatory Commission (CBRC) announced it was to authorise what Reuters reported is the third cut to RRRs in three months.

The cut is the latest in a series of measures by the Chinese government designed to support the economy amid concerns that China's economic growth is slowing down.

The targeted RRR cut is expected to cover around two-thirds of city commercial banks, said Xinhua. Banks eligible for the cut include those whose new loans to agriculture-related entities accounted for at least half of their total new lending in the last fiscal year. Banks whose outstanding loans to agriculture-related entities accounted for at least 30% of their total outstanding loans in the last fiscal year will also be eligible for the cut. The same rules apply to banks engaged in lending to small and micro-sized companies, Xinhua said.

The PBoC is also to cut the RRR for finance companies, financial leasing firms, and automobile finance enterprises by 0.5 percentage points in a move designed to boost consumption, Xinhua said.

China has expressed concerns about a slow down in its economic growth in recent months, and has introduced a number of measures designed to support its economy.

Official statistics found that China's gross domestic product (GDP) grew 7.4% in the first quarter of 2014 compared to the same period last year, and slower than the government's target of 7.5% growth for this year. Chinese officials have recently warned that China could miss its trade growth target for a third consecutive year in 2014 due to rising labour costs and weakening global demand. Zhang Ji, director general of the foreign trade department at China's ministry of commerce said that a period of high growth for China has ended as increased costs reduce its competitiveness and as Europe and the US try to boost their manufacturing and export sectors, according to Reuters.

Officials are concerned about a number of factors in the Chinese economy, said Reuters, including China’s debt load, relatively weak global demand, and overcapacity in some sectors, including the steel industry. Beijing is also concerned about a slow down in the Chinese real estate market, with average prices for new homes falling in May from the previous month, representing the first contraction in nearly two years, according to the China Real Estate Index System, said Reuters.

Recent stimulus measures introduced by the government include ordering commercial banks to offer more mortgage loans to home buyers and extending tax breaks to all companies who employ people who have been unemployed for more than one year, Xinhua reported.

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