China's Economic Crisis Concerns... Passive Quantitative Easing Including Reserve Requirement Ratio Cut

Reserve Requirement Ratio Cut by 0.5%P from the 15th, Financial Sector Gains 1 Trillion Yuan Lending Capacity
Long-term Deposit Rates and Various Financial Fees Reduced, Major Provinces Raise Minimum Wages to Boost Real Economy

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China will lower the reserve requirement ratio (RRR) by 0.5 percentage points on the 15th, ahead of the official announcement of the second-quarter economic growth rate. When the RRR is lowered, banks and other financial institutions have greater lending capacity.

In this regard, as uncertainties such as the spread of the COVID-19 Delta variant increased, Chinese financial authorities are analyzed to have introduced a cautious quantitative easing policy. Due to concerns that the economic growth rate might fall in the second half of the year, preemptive financial policies such as lowering the RRR, reducing deposit interest rates, and cutting various financial transaction fees were applied. Chinese authorities also raised the minimum wage to prevent a decline in the vitality of the real economy.

◆ China equips financial sector with 1 trillion yuan ammunition amid crisis concerns = The People's Bank of China announced that it will lower the RRR for financial institutions by 0.5 percentage points starting on the 15th. This is the first time in 15 months since April last year that the People's Bank has lowered the RRR. China lowered the RRR three times in January, March, and April last year due to the COVID-19 shock. Xinhua News Agency reported that as a result, the average RRR of Chinese financial institutions will drop to 8.9%.

Regarding this RRR cut, the People's Bank stated that rising international raw material prices have increased operational pressures on some small and medium-sized enterprises (SMEs), and the RRR is being lowered to support Chinese manufacturing SMEs. At the same time, the bank emphasized that this measure is not quantitative easing and that China will maintain its existing monetary policy.

However, there is growing analysis that a cautious monetary policy was used preemptively due to concerns about an economic downturn in the second half of the year. With the RRR lowered by 0.5 percentage points, Chinese financial institutions will secure ammunition worth 1 trillion yuan (approximately 177 trillion Korean won). This means that 1 trillion yuan will be released into the market in the form of loans.

Chinese economic experts are optimistic that China's economic growth rate in the second quarter will grow in the 8% range (considering the base effect). The problem lies in the second half of the year. The consensus is that domestic and international environments are unfavorable due to soaring international raw material prices and a global economic recession caused by the spread of the Delta variant.

◆ Real economy drive amid growth concerns in China = Recently, Chinese financial authorities changed the method of calculating deposit interest rates at commercial banks, lowering rates on medium- to long-term deposits of one year or more. Lowering long-term deposit interest rates increases lending capacity in the financial sector by the amount of the reduction.

[Image source=Yonhap News]

Additionally, fees for bank account services, yuan remittance, card usage, ATM withdrawals, and various charges by banks and financial companies will be reduced. These fee reductions are expected to generate a policy effect worth 24 billion yuan (approximately 4.25 trillion Korean won) annually. It is estimated that more than 16 billion yuan of this benefit will go to financial consumers. Reducing various fees has the effect of increasing disposable income.

Pan Yifei, Deputy Governor of the People's Bank of China, stated at a State Council policy briefing on the 8th, "We have discussed ways to appropriately reduce fees paid by SMEs and ordinary people to banks and other financial institutions," and announced that monetary policies will be expanded to allow fee profits from banks and financial institutions to be transferred to the real economy.

To prevent a decline in economic growth momentum, Chinese authorities also raised the minimum wage. China adjusts minimum wages in each province every two to three years, and most provinces have raised the minimum wage by an average of 100 yuan.

Xinhua News Agency reported that Shanghai raised its minimum wage from 2,480 yuan to 2,590 yuan starting from the 1st of this month, and Tianjin also raised its minimum wage from 2,050 yuan to 2,180 yuan. Beijing will raise its minimum wage from 2,200 yuan to 2,320 yuan starting from the 1st of next month. Previously, more than 20 provinces and autonomous regions including Jiangxi, Shanxi, Heilongjiang, Xinjiang, and Tibet Autonomous Region raised their minimum wages by more than 100 yuan.

This content was produced with the assistance of AI translation services.