China's latest monetary policy move, which includes a cut in key lending rates, signals the government's emphasis to place economic growth as its top priority and also its determination to assist smaller businesses to create stable employment, economists said.
"The collapse of Lehman Brothers has made the government realize the gravity of challenges that China faces - such an external-reliant (or export and foreign investment-driven) economy. The decision makers need to shift the focus to promoting growth and protecting employment," said Sun Lijian, a finance professor at Fudan University.
China's gross domestic product slowed to 10.1 percent in the second quarter of this year, from 10.6 percent in the first three months and 11.9 percent last year.
"With the vigor of developed markets reeling from the United States subprime mortgage crisis, China can't escape the negative influence with just fiscal policies only," Sun said.
That was why the Chinese central bank surprisingly made its first rate cut in more than six years and eased bank reserve requirement for the first time in nine years.
On Monday, the People's Bank of China announced a cut in key lending rates and reserve requirement ratio on banks except for the country's big-five lenders and the Postal Savings Bank.
Stephen Green, a Standard Chartered economist, said the move could help bail out smaller businesses which were suffering from the triple whammy of tight monetary control, rising production costs and weaker external demand.
"The 1-percentage-point cut in the required reserve ratio is a big move. This is targeted at smaller institutions, those without the huge deposit base of the big five banks. This is meant in theory to make more funds available for lending, and serve as a way of increasing lending to smaller businesses, than to large companies which are usually clients of major state banks," said Green.
Zhu Jianfang, a chief analyst at CITIC Securities Co, said the central bank has rung the bell for a relaxed monetary policy with its latest move.
"It is good news for smaller banks as well because it can help them increase liquidity and efficiency, while the benefits for small and medium-sized companies are easy to see," said Zhu.
Mao Nan, an analyst with Orient Securities Co, said the small reserve reduction was symbolic and could herald more relaxed monetary policies in the future.
(Shanghai Daily September 17, 2008)
