China is set to cut banks’ reserve requirement ratios (RRRs), taxes and fees, Premier Li Keqiang said, as the world’s second-largest economy shows further signs of cooling. The measures will also included targeted RRR cuts aimed at supporting small and private companies, Li was quoted as saying in a statement on the website of the Chinese government. China slashed reserve requirements four times in 2018 to free up more funds for banks to lend and analysts expect three to four more cuts this year starting in the current quarter.
Beijing will also step up “countercyclical adjustments” of macro policies and further cut taxes and fees, Li said, largely reiterating previous policy pledges. Li made the comments at a meeting with officials of the country’s banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China and China Construction Bank. China reported on Monday that factory activity shrank in December for the first time in over two years, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington and reduce the risk of a sharper economic slowdown in 2019.
New factory orders – an indicator of future activity – continued to soften, suggesting business conditions in China will likely get worse before they get better. In addition to the central bank’s numerous support measures, the government has also ramped up spending on infrastructure to rekindle sluggish demand and investment, but the moves will take some time to kick in. The government maintains 2018 economic growth will still come in on target at around 6.5 percent this year, slowing from 6.9 percent in 2017. But analysts see a further deceleration this year, with growth cooling to the low 6-percent range even if a trade deal with the United States is reached.
“The economy is weak and stimulus needs to arrive quickly,” economists at ING said in a note earlier this week.