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Peoples Bank of China Initiates Reserve Requirement Cut, Boosting Bank Lending Opportunities

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China’s Central Bank Announces Policy Change to Boost Lending

China’s Central Bank Announces Policy Change to Boost Lending

Economic Slowdown Hampers Borrowing Despite Policy Change

  • China’s central bank has announced a policy change to allow banks to lend more money.
  • However, a nationwide economic slowdown has made companies and households wary of borrowing.
  • Growth in China has failed to rebound strongly this year despite previous stimulus measures.
  • Previous measures included government-guided interest rate cuts and rate reductions on bank loans.
  • Some cities have made it easier to get a mortgage by lowering down payment requirements.

Challenges Faced by Banks

  • Many companies are reluctant to borrow more due to weak sales.
  • Households are paying down existing mortgages and taking out fewer new ones due to the sinking housing market.
  • Banks are under pressure to lend money by buying bonds from indebted provincial and local governments.
  • Government bonds are scheduled to be issued in the coming weeks.

Encouragement to Continue Lending to Real Estate Developers

  • Beijing has encouraged banks to keep lending to some real estate developers.
  • Property firms can no longer borrow on overseas bond markets due to defaults and missed payments.
  • The central bank’s regulatory action could lead to further interest rate reductions in the future.

Central Bank’s Statement and Actions

  • The People’s Bank of China aims to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity.
  • The central bank reduced the reserve requirement ratio for much of the banking system by a quarter of a percentage point.
  • The change will take effect on Friday.

Upcoming Data Release

  • Investors and economists will be watching for the release of data on the health of the economy in August.
  • The National Bureau of Statistics will release numbers on retail sales, industrial production, fixed asset investment, and sales prices for new apartments in 70 large and medium-sized cities.

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