China’s Central Bank Unveils Targeted Lending Plan to Aid Growth

China’s central bank said it will reduce the amount of cash lenders must hold as reserves from next year, with the size of the cut linked to the flow of funding to parts of the economy where credit is scarce.

The targeted measures apply to all major banks, 90 percent of city commercial banks, and 95 percent of rural commercial lenders, the People’s Bank of China said in a statement late Saturday. Cuts will range from 0.5 percentage point to 1.5 percentage point depending on how much business banks do with small enterprises, agricultural borrowers and startups. Foreign banks will also be eligible for the cut should they meet the requirements.

Further details:

  • Banks will enjoy 0.5 percentage point RRR cut if eligible lending exceeds 1.5 percent or more of their new lending in 2017
  • Deduction will be 1.5 percentage point if eligible lending reaches 10 percent or more of new lending in 2017, or if “inclusive finance” loans take up 10 percent of total outstanding loans in 2017
  • Rural commercial banks who meet an earlier requirement that at least 10 percent of new lending is local can receive a 1 percentage point reduction
  • Click here for a link to the full statement in Chinese

The targeted reduction is a “structural adjustment” and isn’t a shift in monetary policy, the central bank said in a separate Q&A statement late Saturday. Policy makers, who have kept the benchmark lending rate unchanged for almost two years, also reiterated Saturday that they aim for “prudent and neutral” monetary policy.

The policy signals that the PBOC is, like the rest of the government apparatus, pulling multiple levers to keep economic growth from slowing too sharply in the second half, when the all-important 19th Party Congress takes place. While China is currently experiencing still-rapid credit growth despite an anti-leverage campaign, small- and medium-sized enterprises can still be starved of credit.

“The latest move is striking for the advance…

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