In­ter­net-led fi­nan­cial in­no­va­tion key to struc­tural re­forms

China Daily (Canada) - - LIFE -

China’s mon­e­tary eas­ing pol­icy to en­sure am­ple liq­uid­ity in the fi­nan­cial sys­tem is wel­come, but the fact re­mains that only more In­ter­net­driven fi­nan­cial in­no­va­tion can help such a fa­vor­able fi­nan­cial en­vi­ron­ment boost the coun­try’s job-cre­at­ing small busi­nesses.

The first cut in the re­serve re­quire­ment ra­tio in 2016 an­nounced by the Peo­ple’s Bank of China onMon­day was widely re­ceived as an en­cour­ag­ing sign that the au­thor­i­ties will adopt more ex­pan­sive fis­cal and mon­e­tary poli­cies to sup­port growth. The cen­tral bank’s sur­prise move even en­abled Chi­nese shares to shrug off dis­ap­point­ing man­u­fac­tur­ing and ser­vice sec­tor sur­veys to re­bound on Tues­day.

As the lat­est sign of strong head­winds against the world’s se­cond-largest econ­omy, China’s man­u­fac­tur­ing ac­tiv­i­ties con­tracted for a sev­enth straight month in Fe­bru­ary while its ser­vice sec­tor ac­tiv­i­ties con­tin­ued to slow down. Of­fi­cial data show China’s Pur­chas­ing­Man­agers’ In­dex for the man­u­fac­tur­ing sec­tor fell from 49.4 in Jan­uary to 49 in Fe­bru­ary, the low­est level since Au­gust 2012, and that for the non-man­u­fac­tur­ing sec­tor slid from 53.5 to 52.7.

The com­bi­na­tion of such weak growth mo­men­tum, the re­cent plunge of the stock mar­ket and the need to ster­il­ize the pres­sure on­go­ing cap­i­tal out­flows have put on liq­uid­ity should jus­tify the re­serve re­quire­ment ra­tio cut, in or­der to avoid un­wanted mon­e­tary tight­en­ing.

But its im­pact on China’s eco­nomic growth largely re­mains un­known. The av­er­age re­serve re­quire­ment ra­tio’s re­duc­tion from 17 per­cent to 16.5 per­cent, though, is es­ti­mated to re­lease about 700 bil­lion yuan ($106.80 bil­lion) in base money sup­ply. But open­ing the tap of liq­uid­ity alone will not en­sure that nu­mer­ous small busi­nesses can get a needed fi­nan­cial shot in the arm. That is why the RRR cut has also sparked fears that in­creased money sup­ply may add fuel to the surge of hous­ing prices in the coun­try’s top-tier cities like Bei­jing, Shang­hai and Shen­zhen but do lit­tle to help other busi­nesses.

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