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China, India are 'natural partners', envoy tells Modi
by Staff Writers
New Delhi (AFP) June 09, 2014

China to reduce rural banks' reserve requirements
Beijing (AFP) June 09, 2014 - China's central bank announced details Monday of a plan that reduces the amount of money rural banks must keep in reserve, a move aimed at stimulating the economy amid slowing growth.

In a statement posted on its website, the People's Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) by 0.5 percentage points for certain agricultural banks, as well as for financial leasing companies and auto financing firms.

The move, which takes effect on June 16, will "encourage commercial banks and other financial institutions to allocate more funds to areas of the real economy in need of support," the central bank said.

The State Council, China's cabinet, first announced the planned cut in late May but did not give details.

China's gross domestic product (GDP) grew 7.4 percent in the first three months of 2014, weaker than the 7.7 percent recorded in October-December last year and the worst since a similar 7.4 percent expansion in the third quarter of 2012.

Chinese leaders have publicly ruled out a massive stimulus package to jumpstart growth as the world's second-biggest economy tries to shift away from investment as a major economic driver, but it has unveiled tax breaks for small firms and railway construction for a boost.

Zhang Zhiwei, a China economist at Nomura, said the move is likely to affect a broad swath of China's banking sector.

"The PBOC's announcement today shows the cut to be quite significant," Zhang said.

"It covers two-thirds of municipal commercial banks, 80 percent of non-county level rural commercial banks, 90 percent of non-county level rural credit cooperatives, all finance companies, financial leasing companies, and auto financing companies," he added.

But Mark Williams, chief Asia economist at Capital Economics, cautioned that the cut "applies only to banks engaged in significant lending either to the rural economy or to small firms".

"For the rest of the economy, the impact will be small," he said, adding that the details "underline how reluctant policymakers remain to pursue across-the-board easing in China".

China's top diplomat told India's new Prime Minister Narendra Modi on Monday that the nuclear-armed neighbours should regard themselves as "natural partners" rather than rivals as they held talks in New Delhi.

Speaking at a press conference in the Indian capital, Chinese Foreign Minister Wang Yi said Beijing could already detect the "wind" of change since Modi won a landslide election last month and was ready to aid what he called a "national rejuvenation" across the border.

"The most important message I've brought is that, on your road to national rejuvenation, China stands by your side," said Wang, who was acting as an envoy on behalf of Chinese President Xi Jinping.

"China and India are natural partners of cooperation," added Wang.

"We are each others' friendly neighbours and partners for strategic need."

Wang's comments came after he held some 45 minutes of talks with Modi in a sign of a mutual desire to improve ties which have been soured by border disputes and competition for influence in their neighourhood.

Ahead of their meeting, Modi had made clear that he intended to pursue a more muscular foreign policy than the previous centre-left Congress party government and would not "shy away" from confrontation when necessary.

But in a keynote speech before parliament that was written by Modi, President Pranab Mukherjee said a "self-reliant and self-confident India" wanted peaceful and friendly relations with all countries.

Modi, whose right-wing Bharatiya Janata Party ousted the ruling Congress party last month after a decade in opposition, has long argued that India has been punching below its weight and has lost ground to China.

After promising to shore up relations with other South Asian countries which have forged closer ties with Beijing during the last decade of Congress rule, Mukherjee singled out China for mention in his speech.

"My government will engage energetically with other neighbours in our region, including China, with whom we will work to further develop our Strategic and Cooperative Partnership," he said.

In response to a question about areas of cooperation, Wang said China was "ready invest in India", highlighting its track record in developing a high speed rail network which is a Modi policy goal.

The foreign minister also said that he was "hopeful" that Xi could visit New Delhi later this year, confirming that the two government were holding discussions about the trip.

- 'Productive beginning' -

Despite his reputation as a hardline nationalist, Modi has spoken of his admiration for China's economic growth in the last decade, and he made several trips to Beijing in his previous post as chief minister of Gujarat state.

In a speech on Sunday night, Modi said India needed to up its game in order to compete with China.

"If India has to compete with China, the focus should be on skill, scale and speed," the prime minister said.

China is India's biggest trading partner, with two-way commerce totalling close to $70 billion. But India's trade deficit with China has soared to more than $40 billion from just $1 billion in 2001-02, Indian data shows.

Relations are also still dogged by mutual suspicion -- a legacy of a brief, bloody border war in 1962 over the Indian state of Arunachal Pradesh, that is nestled in the eastern stretch of the Himalayas that China claims as its own.

The neighbours have held a series of talks to try to resolve their border dispute, but the frontier still bristles with tension.

Wang acknowledged that the exact demarcation of land in some border areas was still in dispute but said both sides would be able to "find fair, reasonable settlements" as long as they stuck to general principles that underpinned broader agreements.

China has been embroiled in a series of territorial and other disputes with its neighbours over the years.

Beijing is also involved in multiple other disputes in the South China Sea, and has a bitter row with Japan over islands in the East China Sea.


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