China’s stimulus move offers hope of boost to UK exports
|
Version 0 of 1. British exporters to China are set to benefit from one of the country’s most aggressive efforts yet to reboot its economic growth. In an effort to encourage its banks to lend more, the Chinese central bank yesterday slashed the amount of money banks are required to set aside as reserves. It was the biggest such relaxation of the safety buffer rules since the global financial crisis. Some British multinationals have been feeling the squeeze from reduced demand from China, which last week said economic growth had slowed to its weakest in six years. Liu Li Gang, chief China economist at ANZ bank in Hong Kong, said the likely extra lending would throw more fuel on to China’s already hot stock market. Like much of the world, China is facing the serious challenge of excessively low inflation. It is also seeing capital flow out of the country, while the slackening pace of economic growth is giving rise to concerns that the country will not be able to keep creating the vast numbers of jobs its population requires. Last month Premier Li Keqiang vowed to step in to stop the economic growth slowdown hitting jobs and wages. He had already cut the reserve requirement once this year. After this latest reduction in the reserves ratio, which was more than analysts expected, Chinese banks will have to keep 18.5 per cent of depositors’ cash on hand as reserves. That compares with 19.5 per cent before. It will be reduced by another percentage point for rural banks, two additional percentage points for the central bank’s Agricultural Development Bank, and a further 0.5 per cent for banks lending to agriculture and small businesses. Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of 7 per cent this year from 7.4 per cent in 2014, even with expected additional stimulus measures. The last reserve requirement cut was seen as serving primarily to offset capital outflows that were exerting a drain on the money supply, making it difficult to guide rates down. “The amplitude of [today’s] reduction reflects a more aggressive policy signal,” said Xie Yaxuan, at China Merchants Securities. “The reduction should help make up for the negative growth of foreign exchange in the first quarter, which created a hole in the monetary base.” |