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China Still in the Growing-Pain Stage

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Despite the optimism that China will be the land of the future, that will be true long-term, but there are still in the growing-pain stage. The People’s Bank of China (PBOC) has announced a series of cuts to the required deposit reserve ratio, releasing hundreds of billions of yuan into the financial system amid growing concerns about the impact of capital outflows.

The PBOC said it will cut the reserve requirement by 50 basis points for all institutions, with an additional 50 basis point cut for some small lenders and a 4 percentage point cut for the ratio applied to the Agricultural Development Bank, one of the government’s policy lenders. A system-wide reserve cut of 50 bps is equivalent to just over CNY500 billion in bank deposits.

The long-awaited move comes as market interest rates rise ahead of the Chinese New Year holiday, which falls on February 18. It also follows balance of payments data on Tuesday which suggests that capital is leaving China in ever-greater quantities.