Date
6 January 2020
The People’s Bank of China has referred to its latest RRR cut as a ‘counter-cyclical’ measure to support economic growth and improve the access to financing. Photo: Reuters
The People’s Bank of China has referred to its latest RRR cut as a ‘counter-cyclical’ measure to support economic growth and improve the access to financing. Photo: Reuters

China makes another move to support economic growth

China’s economy has shown much?resilience last year despite a series of internal and external challenges, including swine flu, trade war, and the unrest in Hong Kong.

Though the economic performance is commendable, authorities still need to stay vigilant and take preemptive measures to ward off possible downward pressure as 2020 might witness further challenges.

Against such backdrop, the central bank announced on the first day of the New Year a cut in reserve requirement ratio (RRR) for commercial banks, and it is believed that there would be other supportive measures on the way.

The 50-basis-point RRR cut was, to a certain extent, expected by the market.

Unlike similar moves taken last year, which were “technical”, the People’s Bank of China explicitly describes the latest cut — which will take effect on Jan. 6 — as a “counter-cyclical” measure to support economic growth and improve the access to financing.

The move came just a few days after the central bank mandated a shift to loan prime rate (LPR) as the basis for banks to price floating rate loans.

While Beijing is putting more emphasis on the quality of growth, maintaining certain level of GDP growth rate still matters a lot.

China’s GDP growth is expected to come in at around 6 percent for 2019. While it might be difficult to achieve similar expansion this year, authorities may aim for a figure somewhere close to that level, rather than letting the growth pace slip toward, say 5 percent.

As such, in addition to monetary measures, administrative and fiscal measures may also be tapped later this year.

In the meantime, given the easier monetary environment, asset-heavy sectors that rely more on borrowings could be interesting investment targets.

This article appeared in the Hong Kong Economic Journal on Jan 2

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist
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