MILAN, May 6 (Class Editori) -- The People's Bank of China has made a significant new move to stimulate economic growth. This time, after repeated interventions to improve credit conditions in particular for SMEs, PBoC decided to reduce the mandatory reserve requirement of small and medium-sized banks from next May, 15 to stimulate the granting of loans to private companies.
Analysts estimate that this move would cause the release of almost 42 billion dollars, which will enrich the liquidity of the banking system.
The banking institution did not specify the amount of the coefficient cut but pointed out that the ratio could fall to 8% and that about 1,000 rural commercial banks could benefit from it.
According to PBoC data, the ratio for small and medium-sized banks at the end of last year was 11.5%.
According to UBS economists, it is likely that China will reinforce the incentives if trade tensions with the United States will further intensify. They also expect Beijing to return to monetary easing to the detriment of economic stabilization measures.
For analysts, further stimulus measures could include greater spending on infrastructure, a continuous easing of credit, a less restrictive attitude towards the real estate sector and other cuts to the obligatory reserve ratio of banks.
Meanwhile, on the macroeconomic front, the SME Caixin services rose slightly in April, in contrast to what emerged from the official reading in Beijing, down compared to the previous month. The index rose to 54.5 points from 54.4 in March, while the official index fell from 54.8 to 54.3 points.
"As a whole, the Chinese economy has held up well in April, especially in the services sector," pointed out Zhengsheng Zhong, director of macroeconomic analysis at Cebm Group. Zhong outlines that costs across the service sector have remained relatively high, limiting the earnings growth potential of companies. Furthermore, business confidence has not recovered.
On the other hand, there are mixed signals from China on the solidity of the economy. In March, for example, the national statistical office certified that the largest industrial companies have recorded a 13.9% growth of profits on an annual basis, therefore compensating for the 14% drop which occurred in the first two months of 2019.
In absolute terms, profits in March reached 88 billion dollars, while in the first three months have reached the threshold of 187 billion dollars. According to the same source, the rebound in business performance in March is due to growth in production and sales. Added value attained +8.5%, in March, growing by 3.2% compared to the previous two-month period.
It should be noted that, with production costs that were substantially stable or slightly up (+0.4%), the operating margin of the same companies grew by 13.7%.
The performance was partly due to a lower tax burden on value added, and from a revenue perspective, was also due to the spring festivals that stimulate consumption.
(Source:Class Editori)
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