China cuts bank reserve requirement ratio to free up funding

June 24, 2018 - 11:15 pm

BEIJING (AP) — China says it will cut the amount of money some banks are required to keep on hand in part to free up funding for small businesses, amid a brewing trade war with the United States.

The central bank said the cut of 50 basis points, or half a percentage point, in the reserve requirement ratios will take effect on July 5. The move will release about 700 billion yuan ($108 billion) for use, 200 billion yuan ($30 billion) of which will be earmarked specifically for small businesses with the rest going into debt-for-equity swaps.

Among the banks included are the country's top five state lenders.

The move, which falls a 1 percent cut in the ratio on April 25, can be seen as an attempt to shore up the economy in the face of looming punitive trade measures planned by the U.S.

On July 6, the United States is set to slap tariffs on $34 billion in Chinese goods to punish Beijing for its attempts to supplant U.S. technological dominance, and later add tariffs on an additional $16 billion in goods.  

Beijing has vowed to retaliate, and Trump has threatened additional tariffs. In total, $450 billion in Chinese products could eventually be covered by the measures, representing nearly 90 percent of all the goods China exports to the U.S.

Rhetoric is already intensifying in the tit-for-tat conflict between the world's two largest economies. A Chinese Commerce Ministry spokesman last week said Beijing was opposed to what he called Washington's "act of extreme pressure and blackmail by swinging the big stick of trade protectionism."

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