China makes ‘US$102 billion’ move to aid slowing economy, but will it be effective?
- The People’s Bank of China has changed the definition of a small business to encourage banks to increase lending amid the trade war with the United States
- Estimates of amount of liquidity the targeted reserve-requirement ratio cut will release range from 400 billion yuan to 700 billion yuan
The effectiveness of a move by China’s central bank to inject up to an expected 700 billion yuan into the world’s second largest but worryingly slowing economy is difficult to calculate given the lack of transparency in the monetary policy, warned a chief economist.
The People’s Bank of China (PBOC) has changed the definition of a small business, meaning an enterprise with a credit line of less than 10 million yuan (US$1.46 million) will qualify for targeted reserve-requirement ratio cuts, up from the previous standard of 5 million yuan.
This will allow banks to lend more capital to enterprises now classed as small businesses, and therefore free up more reserves from the central bank.
But with the news, released on Wednesday evening, failing to specify an exact figure, the fact that estimations range from 400 billion yuan (US$58.27 billion) to as much as 700 billion yuan (US$101.97 billion) is seen to reduce the transparency of the policy, making it hard to calculate the exact effectiveness.
Liao Zhiming, an analyst at Tianfeng Securities, wrote that the move could unleash as much as 700 billion yuan of funds, while analysts at China International Capital Corporation expected the change to release only 400 billion yuan of liquidity.
