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Cuts, cash, credit: China bids to jumpstart flagging economy
PHOTO: AFP/FILE
AFP, Beijing
China this week unveiled a bundle of new measures aimed at kickstarting its economy, battered by unprecedented headwinds including a property sector crisis and sluggish spending.
The stimulus followed warnings that more state support was needed to get the world’s second-largest economy back on track and hit growth targets for 2024.
Here are the steps announced by Beijing this week:
Rate cuts
The People’s Bank of China on Wednesday cut its medium-term lending facility -- the interest for one-year loans to financial institutions -- from 2.3 percent to 2.0 percent. The rate was last lowered in July.
Most Asian markets rose following the announcement, which came two days after monetary policymakers said they would lower China’s 14-day lending rate.
The raft of measures are considered the boldest in years as Beijing aims to revive economic activity.
Ting Lu, chief China economist at Nomura, said Beijing “seems finally determined to roll out its bazooka stimulus in rapid succession”.
Cash injection
China’s central bank also on Friday slashed the reserve requirement ratio -- which dictates how much cash banks must keep on hand -- hoping to boost lending to companies and consumers.
Beijing said this week the cut would inject around a trillion yuan ($141.7 billion) in long-term liquidity into the financial market.
A major drag on the economy is the housing market, which has been mired in a slump -- home sales volume have tracked a steady decline this year.
But on Tuesday, Pan said that interest rates on existing mortgage loans would be lowered, which he said would benefit 150 million people across China.
“Lower mortgage rates could allow the households to spare a bit more money to spend and should support consumption recovery,” said Chaoping Zhu, global market strategist at JP Morgan Asset Management.
Lower down payments
In a potential further boost to the housing market, Pan added that minimum down payments for first and second homes would be “unified”, with the latter dropping from 25 percent to 15 percent.
ANZ Research said the package of measures was “sufficient” for the country to achieve 4.9 percent growth this year.
“However, it remains too small and too late for the ongoing property woes,” the firm said in a note.
“We estimate the average mortgage rate will be lowered to about 3.0 percent by this year end, which is still too high compared to the average rental yield,” they said.