Editorial | Beijing pulling out all stops to ensure that economy stays stable
- The economic slowdown has raised pressure for a clear target for growth next year, which would boost investor confidence
These include the increasing possibility that the United States Federal Reserve will move on interest rates. This has to be seen against the backdrop of strong hot-money flows into China over the past year, reflected in official figures for foreign direct investment in the first 10 months. This was up by nearly 18 per cent year on year to 943 billion yuan, according to the commerce ministry, making China the major recipient worldwide.
The concern is that if the US raises interest rates, the flow of capital will go into reverse. Raising rates to stem it would hurt China’s economy. Cutting the reserve requirement ratio is a better fit with other policies when it comes to supporting the economy. Inflationary pressures that would otherwise bear on interest rates are largely absorbed by the government through price control, leaving the Chinese consumer less affected.
A cut in the reserve ratio is therefore unlikely to affect inflation, particularly for the general public. Indeed, because it can provide quick, needed relief to small and medium-sized enterprises (SMEs) that create the most jobs, it is a logical step.