This week, China introduced a series of initiatives designed to rejuvenate its struggling economy, which is grappling with challenges like a property market crisis and low consumer spending.
The stimulus package comes in response to calls for increased government support to steer the world's second-largest economy toward its growth targets for 2024.
Here’s a summary of the measures announced by Beijing:
Interest Rate Cuts
On Wednesday, the People's Bank of China reduced its medium-term lending facility rate from 2.3% to 2.0%, marking the first decrease since July. The announcement, which followed a prior reduction in the 14-day lending rate, buoyed most Asian markets. Analysts see these steps as some of the most aggressive in years aimed at reviving economic activity.
Ting Lu, chief economist for China at Nomura, remarked that Beijing appears "determined to deploy its stimulus rapidly."
Cash Injections
On Friday, the central bank reduced the reserve requirement ratio, which determines how much cash banks are required to hold. This move aims to stimulate lending to both businesses and consumers, with an anticipated injection of about one trillion yuan ($141.7 billion) in long-term liquidity into the financial market.
The ongoing downturn in the housing sector has significantly impacted the economy, with home sales steadily declining this year. However, a recent announcement indicated that interest rates on existing mortgages would be reduced, benefiting approximately 150 million people across the country. JP Morgan Asset Management's Chaoping Zhu noted that lower mortgage rates could free up household spending and help stimulate consumption recovery.
Reduced Down Payments
In a move to further support the housing market, officials announced a unification of minimum down payments for first and second homes, with the latter dropping from 25% to 15%. ANZ Research commented that these measures could be "sufficient" to help China achieve a 4.9% growth rate this year but cautioned that they might be "too little, too late" given the ongoing property challenges.
Additional Measures
Other potential actions are being considered as well. During a recent Politburo meeting, leaders acknowledged new economic challenges and committed to enhancing the effectiveness of their policy measures. Moody’s Analytics economist Harry Murphy Cruise noted that the urgency of the situation prompted earlier economic discussions than usual.
Reports also surfaced that officials are contemplating injecting over $140 billion into large state-run banks, marking the first significant capital infusion since the 2008 financial crisis. This measure aims to enhance banks' capacity to lend to businesses and would primarily be executed through the issuance of new special sovereign bonds, though details are still being finalized.
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