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China has unleashed a swath of stimulus measures including cuts to its benchmark interest rate as Beijing battles a slowdown in the world’s second-largest economy.
In a rare public briefing on Tuesday, the People’s Bank of China also announced government funding to boost the stock market and aid share buybacks, as well as more support for the stricken property sector.
With economists sceptical about whether China will hit the government’s full-year growth target of 5 per cent, PBoC governor Pan Gongsheng said the measures aimed to “support the stable growth of China’s economy” and “promote a moderate rebound in prices”.
China’s CSI 300 of Shanghai- and Shenzhen-listed shares rose 3.8 per cent on Tuesday following the announcement, putting the index on track for its best day since March 2022. Hong Kong’s Hang Seng index rose 3.9 per cent, led higher by mainland Chinese companies listed in the territory.
Pan said the PBoC would reduce its short-term seven-day reverse repo rate, the central bank’s main policy rate, to 1.5 per cent from 1.7 per cent.
The PBoC will also cut the reserve requirement ratio, the amount of reserves lenders must hold, by 0.5 percentage points, he said, while signalling a further potential cut of 0.25 to 0.5 percentage points this year. The RRR cut would add Rmb1tn ($142bn) in liquidity to the banking system, he said.
“The rare simultaneous cut of policy rates and RRR, the relatively large magnitude of cuts and the unusual guidance on further policy easing indicated policymakers’ growing concerns over growth headwinds,” Goldman Sachs analysts wrote in a note to clients.
“In our view, this signals a new round of policy easing ahead to support the real economy,” Goldman said, adding: “That said, more demand-side easing measures — especially fiscal easing — are likely to be needed to improve China’s growth outlook.”
China’s economic growth has decelerated in recent months as a prolonged slowdown in the property sector has weighed on consumer sentiment and curbed spending.
Economists have slashed their growth forecasts to less than the government’s official target of about 5 per cent for 2024 as deflationary forces have persisted, with producer prices declining since last year.
Policymakers have turned to exports in the hope that the housing crisis will bottom out, but robust shipments of electric vehicles, batteries and other goods have not fully offset the weaker domestic economy.
“The Chinese economy is recovering and the monetary policies introduced by our bank this time will help support the real economy, incentivise spending and investment and also provide a stable footing for the exchange rate,” Pan said.
The central bank head was joined by Li Yunze, director of the new financial sector watchdog, the National Financial Regulatory Administration, and Wu Qing, chair of the markets supervisor, the China Securities Regulatory Commission.
The officials also announced an Rmb500bn ($71bn) fund to help brokers, insurance companies and funds buy stocks. The PBoC will also provide Rmb300bn to help companies conduct share buybacks.
“A fresh stimulus push is certainly positive,” said Liu Chang, macro economist at BNP Paribas Asset Management.
But with economic momentum weak heading into the fourth quarter, officials needed to act “very quickly in the weeks ahead to implement additional measures if they wish to get to the 5 per cent target”, Liu said. “In this regard, we think there is still a worrying lack of urgency behind their words around stimulus.”
The PBoC’s cuts came after the US Federal Reserve last week cut its benchmark interest rate by half a percentage point, its first such reduction in more than four years. The Fed’s move narrowed the differential between the US and other major central banks’ rates, which eased pressure on foreign currencies and gave institutions, including the PBoC, more room to manoeuvre.
In other measures, the bank lowered mortgage downpayments for second homes to 15 per cent from 25 per cent. Second properties had been subject to more onerous conditions to curb real estate speculation, previously a focus for President Xi Jinping.
The PBoC also said it would provide better terms for a destocking programme, under which the central bank made Rmb300bn available to local government-owned enterprises to help them buy unsold inventory from property developers.
But the central bank stopped short of increasing the funds available under the programme, amid signs it was struggling to gain traction.
Economists have said reducing China’s vast stock of unsold housing is crucial to restoring confidence in the economy and reviving domestic consumption.
