SHANGHAI: China's central bank said Thursday it has eased lending restrictions on more than 20 small banks nationwide, as it seeks to channel more funds to cash-strapped private firms and the farming sector.
The People's Bank of China will cut the reserve requirement ratio for the rural banks by half a percentage point to 16 percent, effective Friday, the central bank said in a statement sent to AFP.
The group includes six lenders in the eastern province of Zhejiang, where many privately owned companies are facing a credit crunch, said the statement from the central bank's Hangzhou city branch.
An official at the headquarters of the central bank in Beijing confirmed the total number, but declined to say where the other banks were located.
"All of the more than 20 banks are included (in the cut)," said the official, who also declined to be named.
The move, which reduces the amount of funds banks must set aside, is a sign the government is selectively easing tight credit restrictions put in place to curb surging inflation and property prices.
The central bank said it would maintain its "prudent monetary policy", while giving more credit to support weak parts of the economy such as the agricultural sector and small businesses.
Credit restrictions have fuelled an explosion in underground lending as private firms borrow money at high interest rates from informal lenders after being rejected by major banks who favour other state-controlled enterprises.
But the disappearance of more than 90 entrepreneurs in Wenzhou city in Zhejiang, who are thought to have run away over high debts, has fuelled concerns that even the informal lending market could collapse.
China, anxious about rising living costs, has pulled on a variety of levers to curb price rises in the past 18 months, including restricting the amount of money banks can lend and hiking interest rates.
But the central bank has said recently it would "fine-tune" monetary policy amid growing concerns that the weak global economy is increasing the risk of a hard landing for China.
Preliminary data released by HSBC on Wednesday showed China's manufacturing activity slumped to its lowest level in 32 months in November, renewing fears the Asian powerhouse is losing steam amid global economic woes.
China's consumer inflation eased in October to 5.5 percent, the slowest pace since May, while economic growth slowed to an annual 9.1 percent in the third quarter from 9.5 percent the previous quarter.
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