Counter-cyclical Measures Benefit China’s Bond Market

In order to support the real economy and reduce financing cost, China’s central bank announced a reduction of the required reserve ratio (“RRR”) for most financial institutions by 0.5% on 16 September 2019. City commercial banks operating in Chinese provinces will reduce the RRR by additional 1% (0.5% on 15 October 2019 and another 0.5% on 15 November 2019). The RRR cut, together with the recent reform of the loan prime rate (“LPR”) formation mechanism and the early issuance of local government special debt, would shore up economic growth and benefit the bond market.