Faced with an economy that appears to be slowing faster than economists forecast even a month ago, the Chinese government on Wednesday unexpectedly reversed its yearlong move toward tighter monetary policy and took an important step to encourage banks to resume lending.
The central bank said 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 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 as much as 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 Shanghai stock market slumped 3.3 percent on Wednesday before the announcement was made, 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 change was not made in coordination with the action taken by the Federal Reserve and central banks in Canada, Britain, Europe and Japan to lower the cost of borrowing dollars for foreign banks.
The central bank increased the so-called reserve requirement 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 The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policy makers.
Monetary policy changes in China 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.
