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In order to further support the development of the real economy, optimize the liquidity structure and reduce financing costs, the central bank announced a 1 percentage point cut in the evening of January 4. Among them, January 15 and January 25, 2019 were reduced by 0.5 percentage points, while the medium-term lending facility (MLF) due in the first quarter of 2019 will not be renewed.

According to analysis, the purpose of this RRR cut is to better serve the real economy and effectively alleviate the financing difficulties of enterprises, especially private enterprises and small and micro enterprises; therefore, this move has attracted the attention of many manufacturing enterprises.

The central bank interpreted that it is "conducive to the real economy to reduce costs"

1. How much money will be released by the downgrade to replace the medium-term lending facility?

A: The downgrade will release funds of about 1.5 trillion yuan, plus the funds released by the upcoming targeted medium-term lending facility operation and the dynamic assessment of financial inclusion targeted downgrade, and then consider the factors that expire in the first quarter of this year, the medium-term lending facility will not be renewed, the net release of long-term funds of about 800 billion yuan.

2. Does the downgrade mean a change in the orientation of prudent monetary policy?

A: The downgrade is still a directional control, not a flood of water, the sound monetary policy orientation has not changed. The downgrade policy is implemented in two phases, in line with the pace of cash injection before the Spring Festival, which is conducive to maintaining a reasonable abundance of total liquidity in the banking system, while also taking into account internal and external equilibrium, helping to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

3. How does this downgrade support the real economy?

A: The downgrade and related operations net release of about 800 billion yuan of long-term incremental funds, can effectively increase small and micro enterprises, private enterprises and other real economic loan sources. The replacement of medium-term lending facilities can also directly reduce the relevant bank interest payment costs of about 20 billion yuan per year, through the bank transmission is conducive to the real economy to reduce costs. These are conducive to supporting the development of the real economy.

How does the release of funds flow precisely to the real economy?

Zong Liang, chief researcher of the Bank of China, believes that "in previous years, it usually took a long time to brew before the RRR cut, but the direct announcement of the RRR cut at the beginning of the year released a signal to firmly solve the outstanding problems of China's economy, inject confidence into enterprises, and also for 2019. The smooth operation of China's economy has laid the foundation."

"The downward pressure on the domestic economy is relatively high, and there are many uncertain factors due to trade frictions abroad. The central bank chose to adjust the deposit reserve ratio at this point in time. At present, it is still to ease the downward pressure on the economy and boost market confidence," said Zhao Xijun, deputy dean of the School of Finance and Finance of Renmin University of China.

"The current liquidity is tight and the economy is under downward pressure, and the downgrade is now conducive to meeting market flows and seasonal demand." Xu Hongcai, deputy chief economist of the China International Economic Exchange Center, said that it will also help expand investment, consumption and employment, ease the financing pressure of small and micro enterprises and private enterprises, enhance the confidence of market participants, and promote economic stability.

The central bank invested a large amount of liquidity at the beginning of the year, which does not mean that this year's macro-control will have a greater turn. "The main tone of macro-control remains unchanged, with incentive fiscal policy paired with prudent monetary policy. But in terms of specific policy operations, there will be more flexibility and room for operation." Zhao Xijun said.

In terms of supporting the development of private enterprises through RRR cuts, Zhao Xijun pointed out that the liquidity provided by the central bank to the financial system and financial markets should be introduced into the real economy to directly support the development of the real economy and solve its financing difficulties and expensive financing problems. Abundant liquidity should not be allowed to remain, or even flow into areas such as speculation or bubbles.

How to guarantee the release of funds to the real economy? "It is necessary to carry out precise investment and further unblock the monetary policy transmission mechanism, especially to further increase the positive incentives for financial institutions," Guo Tianyong, a professor at the School of Finance and Economics of the Central University of Finance and Economics, stressed. On the other hand, the central bank and the CBRC should also strengthen external supervision to ensure that at least funds invested in private, small and micro sectors through targeted RRR cuts can be used, really used in related areas.

How to implement "larger tax cuts and fee reductions"?

On January 4, Premier Li Keqiang of the State Council inspected the Inclusive Finance Department of Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, and hosted a symposium at the China Banking and Insurance Regulatory Commission, proposing to increase the counter-cyclical adjustment of macro policies and further adopt tax and fee reductions. Measures to make good use of comprehensive RRR cuts and targeted RRR cuts to support the financing of private enterprises and small and micro enterprises.

"Data from the National Bureau of Statistics show that the PMI index was 50% in November 2018, hitting the critical point of the manufacturing boom boom line and hitting a new low in recent years. This shows that entrepreneurs still lack confidence in the market outlook. Behind the lack of confidence are a series of factors such as heavy corporate tax burden and financial difficulties. The symposium highlighted financial inclusion, which is a very important aspect of supporting small and micro enterprises." Analysis by Gong Yuhang, President of the China Institute of Corporate Finance.

In order to further stimulate the enthusiasm of banks to invest in inclusive finance, the central bank announced on January 2 to adjust the assessment criteria for the targeted downgrade of inclusive finance, the assessment criteria for the targeted downgrade of small and micro-enterprise loans from "single-family credit less than 5 million yuan" to "single-family credit less than 10 million yuan". On January 4, the central bank announced a downgrade, which is conducive to guiding funds to effectively invest in key groups of inclusive finance and better solve the current financing problems.

The central bank's announcement of a downgrade on January 4 was a concrete move in the area of monetary policy. According to Zong Liang, "The next step should be to implement the requirements of the Central Economic Work Conference for 'larger-scale tax and fee reduction'. The organic combination of fiscal policy and monetary policy is a more ideal move."

Bai Jingming, vice president of the Chinese Academy of Fiscal Sciences, said that the support of large-scale tax cuts and fee reductions to the development of the real economy is mainly reflected in three aspects. First, it can better stimulate the development of the real economy. At present, the highest proportion of VAT contribution is the entity enterprise, especially the manufacturing industry. By deepening the VAT reform, the manufacturing industry will be able to get more benefits. Secondly, the personal income tax reform has been fully implemented, which is conducive to promoting consumption growth, which in turn will drive supply. Third, lowering the average tax rate of import tariffs can not only save money for enterprises, but also reduce the burden on consumers.