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SUMMARY
Nearly $175 billion will be freed for banks to lend out and to pay off short-term debt.
On October 7th, the Chinese government announced that they would lower their national bank reserve requirement ratio by one percent. Although this may not seem like a significant change, nearly $175 billion will be freed for banks to lend out and to pay off short-term debt. This is the third time in 2018 the country has lowered their national reserve requirement ratio in an effort to spur the economy. China has considered various policy easing efforts to maintain economic growth, which has been slowing, at 6.5%. Economic analysts have linked the lowered reserve requirement to Chinese concern for the domestic economy among U.S-China trade tensions. From 2000-2013, China’s GDP grew at an average per year rate of 9.95%. This precedent is causing internal conflict as to whether the country should continue to push for that growth or focus on economic sustainability. The easing comes a month ahead of China’s International Import Expo, which Chinese President Xi Jinping has touted as a flagship forum for companies seeking to sell to China.
FAO GLOBAL ASSESSMENT
China will likely face challenges balancing sustained growth and the need for policy reform. Policy easing often puts pressure on currency, as seen with the decline in the Yuan (which is already down 9% on the dollar thus far in 2018). The business environment will likely benefit by the relaxed policy, but Chinese policy makers will always grapple between economic reform and policy stability. Injecting additional capital into the Chinese economy is likely to spark a short term buying spree which will could potentially benefit suppliers to state owned firms and those seeking to expand.
Related Links
- Wall Street Journal – As U.S. Tariffs Bite, China Moves Again to Spur Its Economy
- South China Morning Post – China says it will cut banks’ reserve ratios to support debt-to-equity swaps
- South China Morning Post – China slows yuan slide and will have ‘limited room’ to weaponise in the future
Analyst Bio
Levi Rasmussen – International Business Development
Levi is an International Business Development Intern, focusing on internal strategy and development of FAO’s consulting services. Levi Rasmussen studies International Business, Finance, and Mandarin at the University of South Carolina. At FAO Global and his studies, Levi puts particular interest in facilitating the connection and integration of U.S. and Chinese firms through consulting work and building understanding between culture in dealing with organizations from the East and West. Levi will continue his studies in International Business at the Hong Kong Polytechnic University in Spring 2019.
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ABOUT CHINA INTELLIGENCE BRIEFS
The China Intelligence Briefs are the start of a global initiative to provide context and recommendations to businesses, non-profit organizations, and policy makers who are looking for specific examples of opportunity or disruption from global events. While analyzing the macro problems we often identify specific issues that affect our clients and readers. Identifying both opportunities & challenges allow us to better identify solutions at home and abroad for a wide range of disciplines. In addition to the China Intelligence Briefs, we maintain detailed notes from interviews, overseas trips & business missions, conferences, conventions, and private events. We provide access to these notes and other analytical products for clients and paid subscribers.
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Our Analysts, Associates, Consultants, and Interns all possess extensive experience in a foreign country and a foreign language capability. Our talent pool includes graduates from the elite Tsinghua University in Beijing, Georgetown University, George Washington University, UC Berkeley, and University of South Carolina. Being based in the Washington, DC Metro Area provides our team the advantage to build relationships with policy makers, foreign diplomats, business leaders, and non-profit groups providing a holistic view of global policy and the impacts to the business community. In addition to being based in the Washington, DC area, we retain the input and advice from affiliates located in China. This allows us to maintain on-ground awareness of changing business and political environment conditions and facilitate client projects between the two countries and the greater Asia continent.
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