Yu Yongding: As Growth Slows, China Needs to Remake Its Economic Policy

Yu Yongding: As Growth Slows, China Needs to Remake Its Economic Policy”

The measures will also include targeted RRR cuts aimed at supporting small and private companies, Mr Li was quoted as saying in a statement on the website of the Chinese government.

Richard Xu, head of China Banking and Fintech Research at Morgan Stanley, said that a further RRR cut is necessary to ensure adequate credit supply.

The People's Bank of China said the reserve requirement ratio will be lowered by 1.0 percentage point, with the stimulus going into effect later this month. The reserve requirement ratios (RRRs) are now 14.5 percent for large banks and 12.5 percent for smaller banks.

A "more accommodative" monetary policy will coordinate with a "more proactive" fiscal policy this year, to counter downward pressure on economic growth, said George Xu, an analyst with global ratings agency Moody's.

This month, mainland lenders are due to repay more than RMB 800 billion worth of short-term interbank loans and another RMB 390 billion to the PBOC for its medium-term lending facility.

Wen Bin, an economist at China Minsheng Banking, said that the central bank needed to cut the RRR continuously to provide liquidity to the economy at a time when China's trade surplus and capital inflows, the traditional sources of domestic liquidity, were in danger of drying up.

But the central bank said growth was still within a reasonable range and it would continue to implement a prudent monetary policy, without engaging in massive stimulus.

China reported on Monday that factory activity shrank in December for the first time in over two years, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington and reduce the risk of a sharper economic slowdown in 2019.

China and the United States will hold vice ministerial level trade talks in Beijing on January 7-8, as they seek to end a dispute that is inflicting increasing pain on both economies and roiling global financial markets.

The central bank said on Friday, after a work meeting, that it would keep liquidity reasonably ample, and market interest rates steady. The government has also ramped up spending on infrastructure to rekindle sluggish demand and investment.

Louis Kuijs, chief Asia economist of Oxford Economics, wrote in a note on Friday that China's GDP growth this year could slow to 6.1 per cent from an estimated 6.6 per cent in 2018, and Beijing would rely on policy easing to halt a decline in the growth rate.

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