Home / Finance News / China moves to boost banks’ lending, signalling renewed focus on growth over yuan

China moves to boost banks’ lending, signalling renewed focus on growth over yuan

China may not be done easing. The latest cut takes the ratio to 17 per cent for the biggest banks, still one of the highest such levels in the world.

China’s latest easing move signals that shoring up growth is the government’s top priority even if doing so further weakens the yuan or adds to leverage that threatens the longer-term health of the world’s second-biggest economy.

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The People’s Bank of China said Monday that it’s cutting the amount of cash the nation’s lenders must lock away. The move marked the first time in four months that the central bank has used one of its traditional monetary-easing tools, despite mounting signs of a weaker economy and a stock market in near-freefall.

The action came days before Premier Li Keqiang is expected to set the bar lower for gross domestic product with a 2016 target expansion range of 6.5 per cent to 7 per cent, compared with last year’s goal of around 7 per cent. The renewed focus on growth could be at the expense of any effort to rein in ever-increasing debt: Chinese banks extended a record amount of new loans in January. Meantime, the yuan is down 3.6 per cent against the dollar since October.

“This move suggests that, in the end, supporting growth takes priority over other considerations,” Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, said in a note. “Today’s move matters in terms of what it signals about the policy direction,” said Kuijs, who formerly worked at the World Bank and International Monetary Fund.

PBOC Governor Zhou Xiaochuan highlighted scope for further action ahead of a Group of 20 meeting in Shanghai last week, saying China had “multiple policy instruments” to address growth risks. The half percentage-point cut in the required reserve ratio will inject about 685 billion yuan (US$105 billion) into the financial system, Bloomberg Intelligence estimated.


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