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Reserve requirement ratio cut benefits textile industry

(www.ecf.org.cn)        Updated: 2018-11-02

The People's bank of China, the central bank, announced a 100-basis-point cut to banks' reserve requirement ratio (RRR) earlier this October to pay back around 450 billion yuan ($65.2 billion) of the medium-term lending facility maturing on Oct 15. Moreover, the RRR cut will unleash the liquidity of another 750 billion yuan, which will bring multiple benefits to small- and micro-sized enterprises as well as cotton and textile industries. It is more convenient for enterprises to get loans, which helps small- and micro-sized enterprises to scale up and lower production costs.

As we all know, small and medium-sized enterprises encounter the difficulty of raising funds. The major goal of this RRR cut is to use incremental benefit to guide finance and serve small- and micro-sized enterprises so as to solve their difficulty of raising funds.

The central bank emphasized they will continue to implement the prudent and moderate monetary policy instead of strong monetary stimulus, focus on targeted adjustment, maintain reasonable and sufficient liquidity, and guide credit loans and fundraising to grow in a reasonable size, so as to create a proper monetary and financial environment for high-quality development and supply-side structural reform.

What effects will the central bank's RRR cut have on the country's cotton, textile and garment industries? Some insiders analyzed that there are plenty of effects.

First of all, it helps solve the financial difficulties of cotton and textile enterprises, and the support for credit loans will be strengthened. As the central bank, government funds, and the government are shifting their focus to thousands upon thousands of small- and micro-sized enterprises, particularly accelerating debt-for-equity swap, the intense pressure of cotton enterprises on cash flow is expected to be alleviated effectively.

Second, it helps cotton traders and textile enterprises to receive funds, which is conducive to the stability of cotton price and the mid- and long-term development of the market. Textile enterprises can moderately increase the storage of materials such as cotton to avoid the huge fluctuation risks of Zhengzhou Cotton Exchange Market and Intercontinental Exchange.

Moreover, it helps promote sales of cotton in 2017 and 2018, accelerate the return of capital, and stimulate consumption of cotton, textile products and garment, eventually benefiting the entire industry.