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April 23, 2014

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Home » Business » Economy

Bank moves to bolster rural growth

CHINA’S central bank is to cut the reserve requirement ratio for county-level rural commercial banks by 2 percentage points and that of rural credit cooperative unions by 0.5 percentage points from Friday.

This will help enhance financial support for rural development and guide credit flow to rural areas, the People’s Bank of China said in an online statement.

“In the context of prudent monetary policy, the decision will not affect the overall liquidity in the banking system,” the central bank said, adding that it will continue to achieve reasonable growth in credit and social financing with a focus on improving the financing structure.

The reserve requirement ratio sets the minimum fraction of customer deposits that each bank must hold as reserves rather than lending.

After the adjustment, the ratio for most county-level rural commercial banks will stand at 16 percent and that of rural credit cooperative unions at 14 percent.

Analysts estimate the cut will release around 50 billion yuan (US$8.1 billion) to 150 billion yuan to the market.

Last week, the State Council outlined a string of financial and tax moves to provide more support for the rural economy and create jobs.

“The targeted credit policy does not mean full relaxation of China’s monetary policies. The prudent tone remains unchanged,” said Guo Tianyong, a finance professor with the Central University of Finance and Economics.

Expectations of easing monetary policies have been high since China’s growth slowed to 7.4 percent in the first quarter, the lowest quarterly growth rate since the third quarter of 2012.

But yesterday’s move has reduced the likelihood of a universal cut in the reserve requirement ratio, in a sign that the government will step up targeted efforts to bolster the faltering economy, according to analysts.

Instead of unleashing strong stimulus policies, the government has this time opted to take smaller but more targeted moves, including cutting tax for micro and small businesses, facilitating shanty-town renovation and speeding up railway construction to support growth.

It was announced at an earlier State Council meeting that China was to speed up railway construction in the central and western region to push forward urbanization and reduce regional inequality, with 6,600 kilometers of new railway lines planned this year across the country.

While hoping the investment boost will help the economy, the government is also looking to the vitality of small businesses to support growth and create jobs.

Tax breaks for small firms will be extended until the end of 2016, the State Council said, and it was also considering raising the tax threshold significantly above the current 60,000 yuan level.

China’s small and micro-sized enterprises have played a leading role in generating jobs. Over 70 percent of new jobs are created by 11.7 million such operations, according to a recent report released by the State Administration for Industry and Commerce.

To ensure healthy development in the sector, the State Council recently sent seven inspection teams to 14 provinces and regions to see whether support policies for small and micro-sized enterprises were being properly implemented.




 

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