China to cut amount banks hold in reserve to boost lending

The latest decision is “another step in the right direction, but monetary policy by itself is not enough to boost economic momentum”, Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, told AFP.

“A more proactive fiscal stance focusing on consumption is more important and effective,” said Zhang.

“The allocation of fiscal resources to consumption instead of investment is critical, as China faces deflationary pressure.”

News of the reduction follows Premier Li Qiang’s calls for more “forceful” measures to support China’s battered stocks, giving a shot in the arm to investor confidence.

Bloomberg reported authorities were looking at a raft of initiatives, and policymakers were seeking to mobilise nearly US$280 billion, mainly from the offshore accounts of state-owned enterprises.

The central bank’s governor also said on Wednesday that more policies to offer support for the country’s struggling property sector would soon be announced.

Markets appeared to react positively on Wednesday, with Hong Kong stocks surging to close more than three per cent higher on the day.

Mainland stocks were also up: the Shanghai Composite Index closed 1.80 per cent higher, while trading in Shenzhen saw a 1.25 per cent rally.

China last year recorded one of its worst annual rates of growth since 1990, dampening hopes for a rapid economic recovery following the end of draconian COVID-19 restrictions in late 2022.

The country’s gross domestic product expanded 5.2 per cent to hit 126 trillion yuan (US$17.8 trillion) in 2023, national statistics authorities revealed last week.

The reading was an improvement on the three per cent recorded in 2022, when zero-COVID weighed heavily on activity, but it also marked the weakest performance since 1990, excluding the pandemic years.

China’s economy enjoyed an initial post-pandemic rebound but ran out of steam within months as a lack of confidence among households and businesses hit consumption.

This year, China’s GDP growth is expected to slow to 4.5 per cent, according to World Bank forecasts.

The government is due to announce its official target in March.

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