China has cut its reserve requirement reserve ratio (RRR) by 50 basis points, releasing CNY700billion cash. But this cash will be restricted to two purposes. State-owned and large banks will use CNY500billion for "debt-to-equity swaps" while other banks, including foreign lenders, will use the remaining CNY200billion to lend to SMEs. We think this dual purpose RRR cut will reduce the two biggest risks facing the economy by: relieving corporate default pressure from financial deleveraging reform; providing a cushion for SMEs that could be affected by trade wars. The RRR cut for debt-to-equity swaps should reduce the ... (full story)