* Cuts reserve ratio for big banks to 21 pct from record
* Cuts come sooner than many analysts had expected
* Reflects concern of global slowdown and impact on China
* Seen as policy shift to easing, global markets rally
* Comes as major central banks move to ease market strains
By Zhou Xin and Kevin Yao
BEIJING, Nov 30 China's central bank cut
reserve requirements for commercial lenders on Wednesday for the
first time in three years, a policy shift to ease credit strains
and shore up an economy running at its weakest pace since 2009.
China's policy change came just hours before coordinated
action by major central banks, including the Federal Reserve and
the European Central Bank, to ease credit strains in world
markets buffeted by the euro zone debt crisis.
Official concern is rising that the global economy is on a
slippery slope as the euro zone struggles to decisively tackle
its two-year crisis. Global markets rallied on the combination
of central bank news.
China's central bank said on its website it lowered the
amount of cash that banks have to set aside by 50 basis points,
effective Dec 5. That cut the reserve requirement ratio (RRR)
for the biggest banks to 21 percent from a record high 21.5
percent, freeing up funds that could be used for lending.
"This is a big move -- this is easing," said Stephen Green,
China economist at Standard Chartered Bank in Hong Kong. "It's a
clear signal that China is on a loosening mode. The next move
will be another RRR cut in January."
The cut releases between 350 billion yuan and 400 billion
yuan ($54.8 billion to $62.7 billion) into the banking system,
The People's Bank of China (PBOC) joins the central banks of
Brazil, Indonesia, Thailand and the euro zone, among others, in
easing monetary policy, a reflection of the alarm that the euro
zone debt crisis and a sluggish U.S. economy could drag the
world back into a recession.
China's unusually high reserve rate requirements
have made life difficult for private-sector companies. While
they account for 75 percent of urban employment, they find it
far harder to secure bank loans than politically well-connected
Worried about a destabilising jump in
unemployment, Beijing is eager to lend them a hand. In recent
weeks, China has seen a spate of major strikes in its export
powerhouse in the Pearl River Delta.
Ten of 19 analysts in a Reuters poll on Tuesday had
predicted China would cut its bank reserves in December by 50
basis points. Eight had expected a move in the first quarter of
2012 and one not until the second quarter.
Purchasing managers' data on Thursday could confirm the
pressure on China's manufacturers from the global slowdown after
a flash PMI from HSBC last week suggested the sector was
As recently as the middle of 2011, China was still
tightening monetary policy to combat stubbornly high inflation,
which rose in July to a three-year high of 6.5 percent.
However, as the economy felt the chill of a slowdown in
global activity and inflation eased, Beijing adopted a policy of
"fine tuning" that included loosening credit for cash-starved
Beyond growth concerns, capital outflows driven by
the global market jitters also help explain the central bank's
move, said analysts. Capital inflows have been the main source
of money supply growth in China.
"I think the move is partially driven by capital
outflows in November. Also, it may indicate that the economy has
weakened quite bit and that the official PMI reading does not
look very good," said Zhiwei Zhang, China economist at Nomura.
There are fewer maturing central bank bills due in December,
which also put strains on liquidity conditions for banks.
MORE EASING AHEAD
The cut in the reserve ratio was the first since December
2008 and marks a monetary policy shift to an easing bias.
"The move sends a clear message that the central bank is
ready to relax its policy stance," said Shi Chenyu, an economist
with the investment banking unit of Industrial and Commercial
Bank of China.
The central bank could have achieved the same loosening on
credit quietly, said Mark Williams, chief economist at Capital
Economics in Britain.
"The fact that it chose to act in this more public way is a
signal not only that policymakers are loosening but that they
want to be seen to be doing so. Accordingly, we see this as a
decisive shift in policy stance," he said in a note.
Ting Lu of Bank of America/Merrill Lynch expects the central
bank to cut reserves requirements three times, by a total of 150
basis points, before the end of next year.
Analysts said the China news would boost riskier assets on
hopes that easing policy in China will boost the country's
World stocks jumped 2.6 percent on the combined news from
global central banks and China markets are expected to rally
when they open for trading on Thursday.
Few analysts expect China to start cutting interest rates
anytime soon though.
China's interest rates are already negative when adjusted
for inflation. Policymakers worry that cutting them now would
only prompt savers to pull money out of the banking system in
search of better returns elsewhere, thus crimping bank lending.
China's economic growth has eased for three straight
quarters due to tight credit at home and flagging demand
overseas. The economy grew 9.1 percent in the third quarter from
a year earlier, its weakest pace since the second quarter of
Data since has suggested a further slowdown. The red-hot
property market is showing signs of cooling as sales fell in
October from a year earlier for the first time in six months.
A flash purchasing managers' index from HSBC on Nov 23
showed that China's manufacturing sector shrank in November,
reviving worries of a hard landing for the world's fastest
growing major economy.
HSBC releases the final figures on Thursday alongside an
official survey that analysts forecast will show that the
factory sector stalled in November.
Such data would back a forecast this week from the
Organisation for Economic Co-operation and Development forecast
that China's growth will slow in 2012 to below 9 percent for the
first time in a decade.