China’s central bank yesterday said that it would ensure ample liquidity through targeted reserve requirement ratio (RRR) cuts for banks at an appropriate time, and would keep monetary policy prudent and flexible to support the economy.
China has announced a flurry of steps in recent weeks to shore up investor confidence and help smaller businesses stay afloat as the COVID-19 outbreak severely disrupts economic activity.
Many analysts have said that more support measures are likely as disruptions look set to extend well into the second quarter.
Recent surveys showed a third of the country’s smaller companies have only enough cash to last for a month, with another third believing they can hold out for two months.
The central bank would as far as possible reduce the impact of the outbreak so that economic goals for this year could still be achieved, People’s Bank of China (PBOC) Vice Governor Liu Guoqiang (劉國強) told a news conference in Beijing.
“We’ll further release the long-term liquidity via multiple open market operations,” Liu said. “And make targeted RRR cuts in appropriate time for banks that meet the requirement of releasing inclusive loans and serve the smaller firms.”
The central bank on Wednesday said that it was releasing another 500 billion yuan (US$71.3 billion) to banks to extend cheap loans to small and medium-sized enterprises, on top of 300 billion yuan announced earlier this month for loans to companies that make health supplies such as masks and protective suits.
The PBOC would increase the relending and rediscount quota again if needed, and help the country’s smaller banks replenish capital if they need more funds, Liu said, replying to questions about increasing borrowing needs.
Asked about whether the lending push could fuel credit risks, Liu said that China would keep the macro leverage ratio and prices stable.
Authorities would make sure there would be no systemic financial risks, which is a red line, China Banking and Insurance Regulatory Commission chief risk officer Xiao Yuanqi (肖遠企) said.
“Support policies are mainly for smaller firms facing difficulties because of the virus outbreak, not those in difficult situations before,” Xiao said.
“We’ll prevent non-performing companies from getting a free ride from the push, and prevent related moral hazard,” Xiao added.
Data from the Chinese Ministry of Industry and Information Technology showed that only about 30 percent of China’s small and medium enterprises have resumed normal production, and officials are worried that many might have to start cutting jobs, putting additional pressure on the economy.
Small and mid-size firms account for more than 80 percent of nationwide employment and more than 60 percent of GDP.
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