Smaller firms in China to get more support

BEIJING • China's central bank yesterday said it will cut the reserve requirement ratios (RRRs) for small and medium-sized banks, effective from May 15, in a targeted policy measure to help support companies struggling amid an economic slowdown.

The People's Bank of China (PBOC) said in a statement that the reduction will release about 280 billion yuan (S$57 billion) in long-term funding, which will be used for loans to small and private companies.

The central bank said it will cut the RRR for about 1,000 rural commercial banks operating in counties to 8 per cent, equal to the RRR for smaller rural credit cooperatives.

The move will help lower funding costs for small and micro firms, the PBOC said.

Small and medium-sized banks now have RRRs ranging from 10 per cent to 11.5 per cent.

The cut, while widely expected, came after US President Donald Trump sharply escalated trade tensions between the world's two largest economies with his comments on Sunday that talks towards a trade deal with China were proceeding "too slowly", and that he would raise tariffs on US$200 billion (S$273 billion) of goods to 25 per cent on Friday from 10 per cent.

Analyst Zhou Hao, at Commerzbank in Singapore, said the PBOC's targeted cut showed Beijing's resolve to keep its debt level in check, adding: "I think it is a move to calm the market, to offset the impact from the trade talks, telling you that 'I can give some stimulus during the most difficult times, but I will not give too much'."

Mr Trump's tweets upended the previously calm market mood that had benefited from signs of robust growth in China and the United States, and from comments from Mr Trump and other senior US officials that trade talks were going well.

China's State Council, or Cabinet, said on April 17 that a policy framework would be set up to implement relatively low RRRs for small and medium-sized banks.

Policy insiders told Reuters previously that the PBOC was likely to cut RRRs for small banks to encourage more lending to small and private firms - which are vital for economic growth and job creation. They had pencilled in at least one such "targeted" RRR cut this year.

Commerzbank's Mr Zhou also said the PBOC announcement showed Beijing has made preparations in the event that the trade talks fail.

"I think the market had underestimated China's determination to deleverage, while overestimating China's willingness to reach a trade agreement."

China's Vice-Premier Liu He, who was scheduled to go to Washington this week, is "very unlikely" to follow through after Mr Trump's "threat" to hike tariffs on US$200 billion worth of Chinese goods, the editor-in-chief of China's Global Times newspaper said yesterday.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 07, 2019, with the headline 'Smaller firms in China to get more support'. Print Edition | Subscribe