China to Cut RRR amid Slower Economic Growth

shanghai china
Image: Nikada/iStock

China is set to reduce cut banks’ reserve requirement ratios (RRRs) amid slower economic growth.

According to the country’s Premier Li Keqiang in a statement, the measures will include targeted RRR cuts aimed at supporting small and private firms.

In 2018, China reduced RRRs four times to free up funds for banks to lend.

Li added that China will also step up countercyclical adjustments of macro policies and further cut taxes and fees.

The premier made the comments at a meeting with officials of the country’s banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China, and China Construction Bank.

According to numbers China released earlier this week, factory activity declined in December for the first time in more than two years, suggesting that the business environment is likely to become worse.

China predicts a GDP growth of 6.5% in 2018, compared with 6.9% in 2017.

In December 2018, World Bank said China's economic growth is likely to slow to 6.2% in 2019 from an expected 6.5 percent this year.

"Looking ahead, China's key policy challenge is to manage trade-related headwinds while maintaining efforts to limit financial risks," the bank said its latest assessment on the world's second-largest economy.

The IMF has also cut its forecast on China's 2019 economic growth to 6.2% from 6.4% while keeping its 2018 outlook unchanged.

Consumption will remain the main driver of China's economy, as weaker credit growth weighs on investment and slowing global demand and higher US duties on Chinese good take a toll on the country's exports, the report said.

To stimulate the economy, China could focus its fiscal policy on boosting household consumption rather than public infrastructure and further reduce corporate taxes, the World Bank advised.

CFOs based in the country are also pessimistic about China’s economic growth in 2019, according to a Deloitte survey.

Results indicate that 82% of 108 China-based finance leaders surveyed by Deloitte are less optimistic about the country’s economic prospects than they were six months ago--a 52 percentage point increase from six months earlier--with rising trade protectionism seen as biggest risk.

 

 

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