The Chinese government is doing its best to get the country back on track. It recently announced plans to lower the reserve requirement ratio from 21% to 20.5%. This 50 basis points decrease will mean banks will be able to loan out another $63 billion.
While $63 billion may not be much for the country, it's a good start. China is making sure that its policies are tight and it is doing its best to avoid inflation. Further easing is set to happen; many analyst are expecting the RRR to go to 19%. This would be a considerable easing measure if it were to take place.
With many American companies doing business in China, easing would help the world markets significantly. Keep in mind that China's economy has been fairly stagnant lately. Imports fell in January the most in more than two years and banks are still lending less than they should be.
China's GDP growth is set to fall more than 10% this year due to poor economic factors. With such a large slowdown in the Chinese economy, it has actually hurt the U.S. as well. Many multinational corporations such as Ford (F) and Yum Brands (YUM) have significant operations in China.
China accounts for 60% of our Asia Pacific and Africa sales now and will be a leading part of our sales growth in the next decade. Ford's growth plan [in China] is now in high gear.
-- Ford China CEO Joe Hinrichs
Yum Brands almost has 4,200 restaurants in about 700 cities in China with plans to open another 600 in 2012. KFC alone operates about 3500 restaurants in the second largest economy of the world. Yum had generated operating profit of $755 million in 2010 from China. At least 36 percent of International revenue came from China in 2010.
While $63 billion doesn't mean much, its a sign of what's about to come. The government realizes that it's in its best interest to lower RRR as a form of easing. This type of easing should help boost global markets for a short period of time.