Wall Street Journal Analysis

Deng, C. (2018, Oct 08). As U.S. tariffs bite, china moves again to spur its economy; the reduction to banks’ reserve requirement will free up nearly $175 billion. Wall Street Journal (Online) Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-com.ezproxy.liberty.edu/docview/2116774609?accountid=12085

ARTICLE: AS U.S. TARIFFS BITE, CHINA MOVES AGAIN TO SPUR ITS ECONOMY; THE REDUCTION TO BANKS’ RESERVE REQUIREMENT WILL FREE UP NEARLY $175 BILLION DENG, CHAO . WALL STREET JOURNAL (ONLINE) ; NEW YORK, N.Y. [NEW YORK, N.Y.]08 OCT 2018:

The author of this journal intended to enlighten the readers of the article as well as any other persons of interest on the latest move of reductions to bank’s reserve requirement ratios to mark the fourth modification by the People’s Bank of China in the year 2018. The article also aims at informing the readers of the steps that China is taking to lift the economy, which was slowing due to increased trade competitions with the U.S.

The central bank of China disbursed about $175 billion to allow the China’s banks to increase their loaning capacities and repaying their debts in the move of boosting economic growth that was slowing due to trade fights with the U.S (Deng, 2018). The Central Bank of China in a statement mentioned that it was cutting off the amount of reserves that banks are expected to have by about 1% (Deng, 2018). It was an attempt to address the $250 billion tariff the United State established on Chinese goods, where it further promised to add taxes imposed on imports on $257 billion of products (Deng, 2018). Due to these tariffs, the stock market in Shanghai has recorded a drop of about 15% in the start of the year (Deng, 2018). Yuan was also weakening by approximately 9% compared to the United States dollar by the fourth month (Deng, 2018).

The Chinese central bank proposed that reduction would avail about $174 billion, where about $65 billion will help the banks in paying their debts (Deng, 2018). The reserve requirement ratio cut is to control the amount of deposits that can be pushed through the money multiplier theory. In this theory, the multiplier, which is the ratio of the full money, is explained as reducing the function of the rate. As a result, the big Chines banks have already decreased their banks’ requirement ratios three times this year (Deng, 2018). They have also put in place fiscal tactics to include lowering individual income taxes as well as encouraging the government to increase infrastructure spending (Deng, 2018).

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Reference

Deng, C. (2018, Oct 08). As U.S. tariffs bite, china moves again to spur its economy; the reduction to banks’ reserve requirement will free up nearly $175 billion. Wall Street Journal (Online) Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-com.ezproxy.liberty.edu/docview/2116774609?accountid=12085