China has cut the amount of funds banks have to hold in a reserve, in a bid to boost its economy.
It is the third time the central bank has made such a move in six months.
It follows recent economic data suggesting that the Chinese economy is slowing down. In April industrial output growth slowed to 9.3% - the slowest rate since 2009.
The People's Bank of China says banks will have to hold half a percentage point less in reserve.
For the nation's biggest lenders it means they will have to hold 20% of their assets in cash reserves.
The move should free up banks to lend billions of yuan.
China's economy has been slowing for more than a year. In the first quarter of 2012 it grew 8.1% compared with 8.9% in the fourth quarter of 2011.
Meanwhile, China has agreed to launch negotiations for a free trade pact with Japan and South Korea.
The agreement came at a summit in Beijing.
China is already the most important trading partner for Japan and South Korea.