By Keith Bradsher, New York Times, November 30, 2011
HONG KONG — Faced with an economy that appears to be slowing faster than economists expected even a month ago, the Chinese government on Wednesday evening unexpectedly reversed its year-long move toward tighter monetary policy and took an important step to encourage banks to resume lending.
The central bank said Wednesday that commercial banks would be allowed to keep a slightly lower percentage of their deposits as reserves at the central bank. The change, which will take effect on Monday, means that commercial banks will have more money available to lend, which could help to rekindle economic growth and a slumping real estate market.
Real estate developers, small businesses and other borrowers have been complaining strenuously in recent weeks of weakening sales and scarce credit. Prices have dropped up to 28 percent for new apartments in some Chinese cities this autumn, real estate brokers have been laying off thousands of agents as transactions have dried up, and export orders have slumped.
The Chinese move was a particular surprise because the central bank usually announces moves on Friday evenings, to allow banks and markets plenty of time to digest the news.
The Chinese announcement came after the Shanghai stock market had slumped 3.3 percent on Wednesday, its worst one-day loss in four months, on worries that the government might not act. Central bank officials in the United States said the action was not made in coordination with the action taken by the Federal Reserve, and central banks in Canada, England, Europe and Japan to lower the cost of borrowing dollars for foreign banks.
The reduction in the so-called reserve requirement ratio came after the central bank had increased the same ratio six times this year, and raised interest rates three times. The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policymakers.
Monetary policy changes are made not by the country’s central bank but by the State Council, the country’s cabinet. Shifts in the broad direction of policy are usually made only with the approval of the Standing Committee of the Politburo of the Chinese Communist Party — the nine men who really run China.
Analysts said that the central bank’s decision to announce a change in reserve requirements instead of quietly nudging state-controlled banks to make more loans showed an important political decision had been made.
“The public nature of this move _ a move that would have gone through the State Council _ is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation,” wrote Stephen Green, a China economist at Standard Chartered Bank, in a research note. “This is a big move, it signals China is now in loosening mode.”
The People’s Bank of China, the country’s central bank, cut the reserve requirement ratio by 0.5 percentage points as of Monday, to 21 percent for large banks and to 19 percent for smaller banks.
We all hope that the Chinese move, coupled by the moves by several central banks earlier today to make more money available to European investors, will provide at least a short-term stimulus in the direction of prodding the global economy into a slightly more vigorous recovery from the slump it has been mired in for months.
And perhaps, if the numbers support this general loosening of the money supply, and employment figures indicate a significant rise helping many to keep their heads "above water" and government revenues start to recover, the scales will continue to tip in the direction of economic health and recovery...at least prior to the 2012 elections.
Neither the U.S. itself, nor the world can tolerate a Republican occupant of the White House from 2012 through 2016, given the choice of any of the current candidates in that field and President Obama.