China Moves to Spur Lending as Economic Recovery Slows

July 9, 2021

The People’s Bank of China is looking to release more liquidity into the nation’s financial system as concern about inflationary pressures begin to subside, replaced by worry that the post-pandemic economic recovery is slowing sooner than expected. 

China’s economic recovery showed initial signs of weakness in June, as foreign demand for exports ebbed and supply bottlenecks held back production, causing the factory sector’s expansion to slow. The service sector, a persistent laggard in the nation’s economic rebound, softened further amid coronavirus outbreaks that kept consumers from shopping.

In response, China’s central bank will be lowering the reserve requirement ratio, freeing up $154 billion for banks to lend. The is the first such move that fiscal policymakers have made since April last year. This is something of a pivot for Beijing, which had previously sought to drawdown on credit and reduce debt. It also puts the nation out of sync with most of the other central banks throughout the world, which are trying to tighten their fiscal policies in the face of mounting inflationary pressure.

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