China pledges steps to ensure banking liquidity

An investor looks at an electronic board showing stock information at a brokerage house in Wuhan, Hubei province December 3, 2008.

BEIJING (Reuters) - China will make use of required reserves as well as interest rates and the exchange rate to ensure ample liquidity in the banking system, the government said on Wednesday.

The State Council, China's cabinet, also approved measures aimed at stabilizing the domestic stock market, boosting bond issuance and increasing the supply of credit, according to a statement issued on the central government website, www.gov.cn.

The statement listed 9 ways in which financial policy would be harnessed to support the economy, which is slowing sharply in response to the global downturn and a slump in the domestic property market.

The statement came on the heels of steps by China's central bank to provide dollar liquidity, several traders said.

Before the intervention, trading had almost ground to a halt because banks, believing China was adjusting its currency policy toward moderate yuan depreciation to stimulate the economy, had become unwilling to sell dollars against the yuan.

The nine measures are:

1. China will implement a moderately easy monetary policy to promote reasonable growth in money supply and credit.

China will use various measures, including required reserves, interest rates and the exchange rate, to ensure an adequate supply of liquidity in the banking system.

China will also add 100 billion yuan ($14.5 billion) to the loan quota for policy banks this year.

2. China will encourage local governments to inject money into credit guarantee firms and provide subsidies for them. China will exempt from business tax guarantee firms that provide services to small and medium-sized enterprises.

3. China will take measures to stabilize stock markets and increase bond issuance. Infrastructure bonds in particular will be encouraged.

4. China will promote insurance related to agriculture, housing, automobile purchases, healthcare and pensions. China will encourage insurance companies to invest in transport, communications, energy and other infrastructure projects.

5. China will boost new financing channels, including loans for mergers and acquisitions, real estate investment trusts, private equity funds and private lending.

6. China will improve foreign exchange management to facilitate trade.

7. China will improve its payments system.

8. China will increase fiscal support to financial institutions to help them solve non-performing loans.

9. China will enhance risk monitoring to ensure financial security.

($1=6.88 yuan)

(Reporting by Eadie Chen and Zhou Xin; Editing by Alan Wheatley)