Caixin
Apr 01, 2020 08:50 PM
FINANCE

State Council Announces More Cuts to Banks’ Reserve Requirements

A bank clerk counts cash in Taiyuan, Shanxi province, on March 2. Photo: People.VCG
A bank clerk counts cash in Taiyuan, Shanxi province, on March 2. Photo: People.VCG
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China’s cabinet has decided to step up the country’s monetary response to Covid-19, including a further reduction in the amount of cash some banks must hold in reserve, in a bid to provide further assistance to small and midsize businesses.

A Tuesday State Council meeting chaired by Premier Li Keqiang said China will make further targeted cuts to required reserve ratios (RRRs) for small and medium banks. The government will also increase the banks’ relending and rediscount quotas by 1 trillion yuan ($141 billion), to encourage the issuance of more loans at concessional rates to micro, small and midsize companies, it said.

“Smaller businesses have been hit the hardest by the outbreak,” Li said. “Their restart of operations affects the entire industrial chain and is vitally important for keeping employment stable. The government must promptly roll out support measures that benefit them all.”

The coronavirus outbreak has forced many businesses in China to suspend operations, with many facing cash crunches or even bankruptcy, causing a spike in unemployment. Many economists anticipate China’s GDP will contract in the first quarter for the first time since 1992. The Caixin China manufacturing purchasing managers’ index, one of the earliest independent economic indicators released each month, showed manufacturing activity recovering in March, but economists expect a rebound will be slow due to weak foreign demand and labor market strains.

Wen Bin, a researcher with China Minsheng Banking Corp. Ltd., said that the new measures are mainly to help small and medium banks save costs, and guide them to increase financial support for micro, small, and midsize enterprises. Small and medium banks are one of the main lending sources for small businesses.

The State Council also said the government will support financial institutions to issue 300 billion yuan in financial bonds exclusively targeting small firms.

Usually, such measures announced by the State Council herald moves from the People’s Bank of China (PBOC) within a few days.

This is the latest in a series of measures to help small businesses weather the epidemic. On March 13, the PBOC announced it would pour 550 billion yuan of cash into the financial system through targeted RRR cuts.

On Feb. 26, the central bank announced (link in Chinese) an additional 500 billion yuan of relending and rediscount quotas, after announcing plans earlier in the month to lend 300 billion yuan via a special-purpose relending project to struggling companies on the frontlines of the fight against the coronavirus.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Gavin Cross (gavincross@caixin.com)

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