he People’s Bank of China (PBoC) announced on March 13 that it would cut the reserve requirement ratio (RRR) of banks that meet the assessment criteria by 0.5-1 percent as of March 16. The RRR of joint-stock banks will be reduced by another 1 percent.
The cut, analysts said, will release 550 billion yuan (US$80.9b) in capital in the long term which will encourage banks, especially joint-stock banks whose loans to enterprises reportedly took up 25 percent of the total, to give more loans to enterprises so they can resume production.
Impacted by the coronavirus epidemic, China’s manufacturing Purchasing Managers’ Index (PMI) in February, according to the National Bureau of Statistics (NBS), dropped by 14.3 percent to 35.7 percent compared to January’s PMI, with the production and new orders index both dropping by nearly 30 percent.
At a press conference on February 11 in Beijing, China’s State Council demanded that authorities encourage enterprises to resume production as much as possible while still working to control the epidemic.
The government issued a policy package the next day, including tax cuts, reducing social insurance policies firms have to pay, allowances for use of electricity and gas, and granting subsidized loans.Before the latest RRR cut, the PBoC had already rolled out measures such as reverse repos to ensure a reasonable level of liquidity.
Consumption is another key area to be stimulated. According to the NBS, China’s total consumable retail amounted to 5.2 trillion yuan (US$766.2b) in January and February, a 20.5 percent nominal decrease compared to that in the same period of 2019.
On March 13, 23 government departments issued a document on encouraging consumption, proposing 19 measures to increase market supply, expand sales channels, upgrade means of consumption and improve the consumption environment.
At the same time, local governments announced they would distribute consumption coupons to residents. Nanjing, capital of Jiangsu Province, announced on March 13 that it would distribute 500 million yuan (US$73.5m) worth of coupons to residents, covering catering, sports and books.
The provincial cultural and tourism bureau of Zhejiang Province announced it would distribute 1 billion yuan (US$147m) in coupons to promote cultural and tourism consumption.
As more enterprises resume, analysts predict that many fields, especially tourism, catering and outdoor entertaining that were most heavily impacted by the epidemic, would see a quick rebound once the epidemic ends.
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