China's central bank on Thursday cut the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points, its first RRR cut of the year. The move is expected to provide about 1 trillion yuan ($138.77 billion) in long-term liquidity to the market.
The reduction came after Pan Gongsheng, governor of the People's Bank of China (PBC), said on May 7 that the central bank would roll out measures to strengthen macroeconomic regulation, including cuts to the lending policy rate and the RRR.
Pan said that the RRR cut would improve the structure of liquidity provided by the central bank to the country's banking system, reduce banks' liability costs, and help cement the stability of their liabilities.
Regardless of shifts in global conditions, China remains firmly committed to reorienting its growth toward domestic drivers and leveraging liquidity tools to stabilize market expectations, Huang Bin, a deputy director of the Guoyan Economic Research Institute, told the Global Times on Thursday.
"The central bank's recent moves represent the execution of long-standing policy plans; these measures form a core part of China's broader strategy to stabilize the economy, underscoring its resolve to focus on domestic priorities in a complex external environment," Huang said.
Huang emphasized that the latest RRR cut marks not the conclusion but the starting point of a broader policy rollout for the year, noting that additional policies, particularly those aimed at stabilizing the real estate sector and financial markets, will likely follow in the coming months.
Also starting Thursday, the RRR for auto financing and financial leasing companies is slashed by 5 percentage points to zero percent, with the cut expected to increase the credit supply capacity of these two types of institutions in their respective fields.
After the reduction, the RRR for vehicle financing and financial leasing firms, which directly provide financial support for auto consumption and equipment upgrade investments, would be zero percent, effectively enhancing their credit supply to these sectors, Pan said previously.
"The policy has clearly designated two top priorities - auto consumption and equipment upgrades - as focal points to accelerate consumption upgrading and stimulate investment in high-end manufacturing. These sectors are expected to become key drivers and breakthrough areas for China's economic momentum in the near term," Huang said.
Financial leasing companies primarily serve the corporate sector, including aircraft and equipment leasing. Cutting their reserve requirement ratio to zero is expected to incentivize businesses to upgrade equipment and improve operational efficiency, according to Huang, noting that high-end manufacturing continues to be a key growth driver and a vital pillar of the economy.
The reduction of RRR for auto finance and financial leasing companies to zero will release additional funds to specifically support key areas such as auto consumption, Zhao Xijun, co-president of the China Capital Market Research Institute at the Renmin University of China, told the Global Times on Thursday.
China is steadily implementing a package of policies aimed at stabilizing the market and expectations announced at a press conference on May 7. In addition to the PBC's monetary policy measures, the National Financial Regulatory Administration also rolled out eight additional policies targeting areas such as real estate finance, while the China Securities Regulatory Commission said it was preparing multiple measures to stabilize the market.
On May 8, the rate for the seven-day reverse repos was cut by 0.1 percentage points to better implement the moderately loose monetary policy and enhance support for the real economy, according to the PBC.
In the short term, the policy package has already shown an initial positive effect in stabilizing the market and expectations, Zhao said, noting that market fluctuations since April suggest the timing and effectiveness of the measures have been appropriate.
Chinese stocks have remained overall stable, despite global turmoil caused by the US' tariff policies. The benchmark Shanghai Composite Index briefly dipped below 3,100 points on April 7 following the announcement of so-called "reciprocal tariffs" by the US. However, the index has rebounded to 3,380.82 at market close on Thursday.
