With broad M2 money supply growth forecast to have lingered at a record-low 8.9 percent in September as policy makers push to curb over-indebtedness in some parts of the economy, the People’s Bank of China is now trying to free up funds for others, like small businesses and agriculture. From January, banks doing enough of that sort of lending will get a reduction in required reserves of up to 1.5 percentage point, from 17 percent now for large lenders.
China’s program, unveiled on Sept. 30, may improve on the outcome of the BOE’s Funding for Lending Scheme or the ECB’s targeted longer-term loans because the economy isn’t swimming in other types of monetary stimulus nor in post-crisis gloom. And even though PBOC Governor Zhou Xiaochuan, who meets with other global policy chiefs this week in Washington, can take some pleasure in China’s robust economic performance this year, there’s plenty of need for funding still unmet.
Smaller enterprises in the world’s second-largest economy have been “an under-nourished part of the market and have been for decades,” said Keith Pogson, a managing partner at Ernst & Young LLP in Hong Kong and founder of the firm’s Asian financial services practice. “The Europeans have struggled because there hasn’t been a choke point in the market.”
The RRR cut also comes just before President Xi Jinping convenes top cadres at the 19th Party Congress next week. Protecting the real economy has been an even…