China’s central bank is considering taking a page from Europe’s financial-crisis handbook to free up more credit as growth in the world’s second-largest economy slows.
The proposed strategy would allow Chinese banks to swap local-government bailout bonds for cash as a way to bolster liquidity and boost lending, said people familiar with the People’s Bank of China talks.
In recent months, China’s leaders have directed the central bank to try to beef up bank lending and lower borrowing costs as the economy slows and capital leaves the country. But a barrage of easing measures — including two interest-rate cuts since November — has had limited success. Instead of stimulating targeted areas of the economy, such as small businesses, they have helped companies already heavily in debt. The move also triggered a run-up in China’s stock markets that prompted the top securities regulator last week to rein in speculative stock-trading activities.
On Friday, China’s Premier Li Keqiang urged Chinese banks to do more to support the “real” economy.
A one-percentage-point cut in the reserve requirement, announced Sunday, was the second reduction in less than a quarter and the biggest since December 2008, freeing up about $200 billion for banks to lend. It comes just days after data showing China’s economy decelerated to 7% year-over-year growth in the first quarter, the slowest pace in six years.