China will cut banks' reserve requirements, taxes: Premier Li

China cuts bank reserve requirement to spur economy amid trade war

The latest support measures come amid mounting worries about the health of the world's second-largest economy, which is facing both slowing demand at home and punishing US tariffs on its exported goods.

China cut the amount of cash banks need to set aside as reserves four times a year ago as the nation struggled with slower economic growth, record corporate bond defaults and a trade war with the US.

The People's Bank of China said the reserve requirement ratio will be lowered by 1.0 percentage point, with the stimulus going into effect later this month.

"This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth", said Yang Hao, an analyst at Nanjing Securities.

PBOC's targeted liquidity support to certain institutions for special goal use - such as providing long-term cheap funds to the China Development Bank to finance subsidised housing - has edged towards bankrolling projects favoured by the government. The size of the move was in the upper end of market expectations, Reuters said.

"Policy easing will be stepped up further over coming months", Capital Economics said in a research note.

The PBOC will cut the RRR by 0.5 percentage points on January 15 and January 25, respectively, a PBOC statement said.

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The latest easing sign came on Wednesday evening, when the PBoC adjusted a rule to boost the impact of previous RRR cuts.

Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed China's economy was continuing to lose steam.

China reported on Monday that factory activity shrank in December for the first time in over two years.

Lian Ping, chief economist at the Bank of Communications, said the pressure of the economic slowdown would show up in the first half of 2019 when the existing U.S. tariffs on US$250 billion of Chinese goods would bite deeper into the economy.

Bank lending, money supply and - in a broader context - total social financing will maintain a proper growth pace to cope with GDP growth, they suggested. "The central bank has been handing liquidity to the banks, but the banks are unwilling to lend". It also highlighted maintaining market liquidity at a reasonably ample level. The government has also ramped up spending on infrastructure to rekindle sluggish demand and investment.

China's economic growth is expected to have cooled to around 6.5 percent past year, in line with Beijing's target but down from 6.9 percent in 2017.

But analysts see a further deceleration this year, with growth cooling to the low 6-percent range even if a trade deal with the United States is reached.

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