Central bank cuts reserve ratio, Communist Party’s flagship newspaper decries Sino-US competition

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A round-up of the top economic and financial headlines in the Chinese press as of 15 September, 2023.

Central bank announces 25 basis point reserve ratio cut (PBOC

At present, China’s economic performance continues to recover, endogenous vitality continues to strengthen, and social expectations continue to improve. 

In order to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity, the People’s Bank of China (PBOC) has decided to lower the deposit reserve ratio of financial institutions by 0.25 percentage points starting from 15 September 2023 (excluding financial institutions that have implemented a 5% deposit reserve ratio).

Following this reduction, the weighted average deposit reserve ratio of financial institutions will be approximately 7.4%.

Central bank announces 2nd reserve cut this year, expected to release over 500 billion yuan (Jiemian Xinwen

Analysts forecast that this RRR cut will release more than 500 billion yuan in medium- and long-term liquidity, which is a moderate total amount. 

This will not only alleviate short-term liquidity needs, but also continue to support credit growth, cash injection, and third-party payment institutions over the future. 

The market already expected this RRR cut. On the one hand, funding has tightened recently and funding rates have continued to rise. On the other hand, since August, policies to stabilize growth have accelerated and the process of “easing credit” has further accelerated, increasing demand for funds.

As a consequence, it is necessary for the central bank to reduce the reserve ratio to release low-cost medium and long-term funds, to help stabilise the extension of credit. 

This is the second time this year that the central bank has reduced the reserve requirement ratio. In March, the central bank announced that it would lower the deposit reserve ratio for financial institutions by 0.25 percentage points (excluding financial institutions that have implemented a 5% deposit reserve ratio) to 7.6%.

Using competition to define the entire Sino-US relation is a severe misjudgement (People’s Daily

In recent years, the United States has always mentioned “competition” when discussing Sino-US relations, as though competition has become the biggest theme or even the entire issue in Sino-US relations. 

From the “three-point rule” of “competition, cooperation, and confrontation” to the “three-point theory” of “investment, alliance, and competition”, “competition” dominates the main tone of the United States’ China policy. The many measures taken by the United States fully demonstrate that so-called “competition” on the part of United States has become synonymous with all-round containment and bottom-line containment and suppression of China.

As two major powers, it is normal for China and the United States to compete in certain fields such as the economy, trade, and science and technology. 

This kind of competition should be fair and reasonable, benign and regular, with red lines and restricted areas. It should not ignore the rules of the market economy and the basic norms of international relations, let alone use issues of core interest as tools of competition or means of provocation. 

The United States uses its state machinery to suppress other countries in the name of competition, seeking its own competitive advantage at the expense of other countries’ interests or even impeding their development and progress. This completely deviates from the original meaning of competition and can only expose a naked zero-sum Cold War mentality.

Yunnan provides 1.7 billion yuan to aid small and medium-sized enterprise development (People’s Daily)

As of August this year, Yunnan has allocated 1.762 billion yuan in provincial funds to support the development of small and medium-sized enterprises in industry, services, finance, technology, agriculture and other fields.

In recent years, Yunnan province has established a foothold in policy guidance and financial support, focused on industry development priorities, and given greater support to qualified small and medium-sized enterprises. 

It has primarily adopted project subsidies, post-event incentives and subsidies, loan interest subsidies, risk compensation and other methods to aid the gradual cultivation of small and medium-sized enterprises.

Multiple regions unveil “hard measures” for continuous strengthening of financial support for the private economy (Securities Daily)

On 12 September, the All-China Federation of Industry and Commerce released the “2023 Research and Analysis Report on China’s Top 500 Private Enterprises”, which showed that nearly 70% of the top 500 private enterprises believe the financing environment has improved. 

Specifically, in terms of obtaining financing support, 336 of the 454 top 500 companies that responded to the report believe that the problem of difficult and expensive financing has improved, for an increase of 42 companies from the previous year. 

The improvement of the financing environment for private enterprises cannot be achieved without financial support. Since this year, financial support for the development of the private economy has continued to increase.

Wang Qing, chief macro analyst at Golden Credit, said in an interview Securities Daily that in order to strengthen countercyclical adjustment and boost market confidence, a number of policies to support the private economy and private investment have recently been released, led by the “Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy” (中共中央 国务院关于促进民营经济发展壮大的意见). 

This further sends a clear signal of continuing to deepen reform and opening up and effectively optimising the development environment for private enterprises.

Looking at recent financial support measures, on 28 July eight departments including the National Development and Reform Commission issued the “Notice on Implementing Several Recent Measures to Promote the Development of the Private Economy” (关于实施促进民营经济发展近期若干举措的通知) outlining 28 specific measures. 

These include extending the term of micro-loan support tools until the end of 2024 and continuing to expand the vigour of support for financial inclusion.

Wuhan reduces deposit to 20% for first home loans, 30% for second home loans (Guandian Wang

Wuhan recently decided to reduce the deposit ratio in purchase-restricted areas, to 20% for first homes and 30% for second homes. 

The interest rate for second home loans has been adjusted from LPR+60bp to LPR+20bp, that is, from 4.8% to 4.4%, while the interest rate for first home loans remains the same.

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