China’s Reserve Ratio Cut May Heighten Companies’ and Banks’ Financial Risk

A worker in a protective suit walks on a closed bridge during lockdown in Shanghai, China, May 18, 2022. The country's strict Zero-COVID policy has severely devastated the economy. Aly Song/Reuters

Commentary

On Nov. 25, China’s central bank announced its plan to cut the reserve ratio by 0.25 percent points, effective on Dec. 5, 2022. This would release 500 billion yuan ($69.7 billion) worth of long-term liquidity to the market. However, this move may not effectively boost the economy, but instead increase the financial risk for both corporations and banks.