China unveiled some of its boldest measures in years on Tuesday aimed at boosting its struggling economy as leaders grapple with a prolonged property sector debt crisis, continued deflationary pressure and high youth unemployment.
The world’s second-largest economy has yet to achieve a highly anticipated post-pandemic recovery and the government has set a goal of five percent growth in 2024 — an objective analysts say is optimistic given the headwinds it is facing.
Central bank chief Pan Gongsheng told a news conference in Beijing on Tuesday that the bank would cut a slew of rates in a bid to boost growth, pledging to “promote the expansion of consumption and investment”.
The moves represent “the most significant… stimulus package since the early days of the pandemic”, said Julian Evans-Pritchard, head of China economics at Capital Economics.
However “it may not be enough”, he warned, adding a full economic recovery would “require more substantial fiscal support than the modest pick-up in government spending that’s currently in the pipeline”.
Among the measures unveiled on Tuesday was a cut to the reserve requirement ratio (RRR), which dictates the amount of cash banks must hold in reserve.
The move will inject around a trillion yuan ($141.7 billion) in “long-term liquidity” into the financial market, Pan said.
Beijing would also “lower the interest rates of existing mortgage loans”, he said.
The decision would benefit 150 million people across China, Pan said, and lower “the average annual household interest bill by about 150 billion yuan”.
Minimum down payments for first and second homes would be “unified”, with the latter reduced from 25 to 15 percent, Pan said.
Beijing would also create a “swap programme” allowing firms to acquire liquidity from the central bank, Pan said, which he said would “significantly enhance” their ability to access funds to buy stocks.
“The initial scale of the swap programme will be set at 500 billion yuan, with possible expansions in the future,” Pan said.
‘Hardly a bazooka’
Shares in Hong Kong and Shanghai surged more than four percent on Tuesday.
However, Heron Lim at Moody’s Analytics said the move was expected given gloomy economic data in recent months that suggested Beijing could miss its 2024 growth target.
“But this is hardly a bazooka stimulus,” he told AFP.
“Far more monetary easing and a stronger government stimulus is also desirable to finish bailing out the real estate market and inject more confidence into the economy,” he said.
At a minimum, he said, “broader direct household support in helping them consume more goods will be useful, which is currently just too narrowly designed for industrial goods”.
People on the streets of Beijing welcomed the new measures but said it was unclear whether they would have a significant impact on the economy.
“I think lowering the rates on existing mortgages is definitely a good thing because it will save people money,” said Hu Xianyao, a 35-year-old financial company managing director.
“But whether it can boost consumption depends on improvements in employment and people’s expectations for the future,” Hu told AFP. “I don’t think (the measures) will make me more optimistic about the economy.”
Property and construction have long accounted for more than a quarter of China’s gross domestic product but the sector has been under unprecedented strain since 2020, when authorities tightened developers’ access to credit in a bid to reduce mounting debt.
Major companies including China Evergrande and Country Garden have teetered since then, while falling prices have dissuaded consumers from investing in property.
Beijing has unveiled a number of measures aimed at boosting the sector, including cutting the minimum down payment rate for first-time homebuyers and suggesting the government could buy up commercial real estate.
Those measures failed to boost confidence and housing prices have continued to slide.
Adding further strain, local authorities in China face a ballooning debt burden of $5.6 trillion, according to the central government, raising worries about wider economic stability.
Li Yunze, director of the National Administration of Financial Regulation, said Beijing would “actively cooperate in resolving real estate and local government debt risks”.
“China’s financial industry, especially large financial institutions, is operating stably and risks are controllable,” he said.
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