China Lowers Reserve Requirement Ratio and Financial Fees Amid Economic Slowdown Concerns

Published 09 Jul.2021 11:04(KST)

Medium-sized Enterprise Support, Indicating Expansion of Monetary Policy by the People's Bank to Revitalize the Common People's Economy

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese financial authorities are lowering various financial transaction fees. Earlier, the People's Bank of China, the central bank, had announced a cut in the reserve requirement ratio (RRR). Reductions in the RRR and fees are monetary policies typically used preemptively when economic slowdown is a concern.

According to Chinese media including the state-run Xinhua News Agency on the 9th, the People's Bank of China decided to reduce various handling fees in the financial sector to support small and medium-sized enterprises (SMEs) and revitalize the livelihood economy.

[Image source=Reuters Yonhap News]

Pan Yifei, Deputy Governor of the People's Bank of China, stated at a State Council policy briefing held the previous day, "We discussed appropriate measures to reduce fees paid by SMEs and ordinary people to banks and other financial institutions," adding that "we will expand monetary policies that allow the fee income of banks and financial institutions to be transferred to the real economy."

Premier Li Keqiang previously instructed at a State Council executive meeting to expand inclusive financial policies that support SMEs, self-employed individuals, and individuals, based on maintaining a stable monetary policy stance.

The fees subject to reduction include bank account service fees, yuan remittance fees, card fees, ATM withdrawal fees, and various billing fees of banks and other financial companies.

The People's Bank of China expects that if various fee reduction measures are implemented, there will be a policy effect worth 24 billion yuan (approximately 4.25 trillion KRW) annually, with more than 16 billion yuan benefiting SMEs and self-employed individuals. The bank explained that lowering various fees reduces transaction costs for SMEs, self-employed individuals, and individuals, thereby increasing their disposable income.

Regarding concerns about reduced profits for banks and financial companies, Deputy Governor Pan explained, "Last month, we reformed the deposit interest rate calculation method of commercial banks to alleviate the interest payment burden on banks and financial institutions."

This fee reduction measure by Chinese financial authorities is interpreted as a policy response to the significant burden on production and consumption sectors caused by the sharp rise in international raw material prices. Additionally, there is analysis that Chinese financial authorities are using preemptive monetary policies such as lowering the RRR and financial transaction fees due to concerns that the global economy may shrink again amid the spread of the COVID-19 Delta variant.