On Friday, China reduced the reserve requirement ratio for banks, aiming to stimulate its struggling economy by injecting approximately $142.6 billion in liquidity into the financial system.
The announcement from China’s central bank followed a meeting of senior officials, including President Xi Jinping, who acknowledged emerging challenges in the world’s second-largest economy.
This week, Beijing introduced several measures to bolster its ailing economy, which it has set a growth target of five percent for the year—a goal analysts consider ambitious due to various obstacles.
On Thursday, the ruling Communist Party held a Politburo meeting to assess the current economic situation.
Additionally, on Friday, the central bank lowered the seven-day reverse repo rate— the short-term interest rate on loans from commercial banks—from 1.7 percent to 1.5 percent.
China’s economic growth has been hampered by an ongoing debt crisis in the property sector, weak domestic consumption, and high youth unemployment.
“New situations and problems have emerged in the current economic operation,” the Xinhua news agency reported after the Politburo meeting.
“We must view the current economic situation comprehensively, objectively, and calmly, confront difficulties directly, and boost confidence,” it added.
Politburo members also emphasized the importance of enhancing the focus and effectiveness of policy measures to stimulate the economy.
Cash Injection
Beijing’s array of measures, including key rate cuts and policies to encourage home purchases, has been well-received by investors, with stock markets in Shanghai and Hong Kong rising by over nine percent this week.
Although more steps are necessary for leaders to meet their five percent growth target, the recent moves indicate a growing willingness to adopt more aggressive strategies, according to analysts.
“Beijing now appears committed to deploying significant stimulus measures in quick succession,” said Ting Lu, Chief China Economist at Nomura, in a note.
“Markets should appreciate Beijing’s recognition of the severe economic situation and the limited success of incremental approaches,” Lu added.
Meanwhile, Bloomberg reported that officials are considering injecting over $140 billion into major state-owned banks, marking the first significant capital infusion since the 2008 global financial crisis.
This plan, intended to give banks more lending capacity, would primarily be executed through the issuance of “new special sovereign bonds,” according to sources familiar with the matter. The details are still being finalized.
