Faced with the continued slowdown of the world’s second largest economy, the Chinese central bank on Tuesday 24 September presented a wide range of support measures. This is a sign of the growing concern of Chinese leaders, following the publication of discouraging macroeconomic data at the end of the summer, and while the objective of an annual growth of close to 5% seems increasingly optimistic.
At the news conference, People’s Bank of China Governor Pan Gongsheng appeared alongside financial and stock market regulators to show a coordinated effort. The main policy rate, the one-week rate, was cut to 1.5% from 1.7%, while the reserve requirement ratio for banks was cut by 0.5 point to its lowest level since 2018, which should free up 1 trillion yuan (127 billion euros) into the banking system, according to Pan. He also indicated that further monetary easing measures, including a further reduction in reserve requirement ratios, were likely before the end of the year.
Reduction of the interest rate on real estate loans
The authorities are aiming to help the property market, at the heart of China’s economic problems, and the stock market, which is going through a difficult year. The rate on existing mortgage loans will be brought into line with that on new loans, a reduction of 0.5 percentage points on average, thereby reducing the cost of repayments by 150 billion yuan a year.
“This policy will benefit 50 million households, or 150 million people.Pan Gongsheng argued. This will help consumption and investment. » Moreover, while the stock of unsold apartments or unfinished construction sites has become a visible problem in the new districts of urbanized China, the contribution required from households for the purchase of a second property will be reduced from 25% to 15%.
To support the stock market, the central bank will offer 500 billion yuan in financing facilities to funds, brokerages and insurers to buy shares, as well as 300 billion yuan for share buybacks by listed companies. The announcement sent the main index of the Shanghai Stock Exchange up 4.15% on Tuesday, though it is still down 8.1% over the past 12 months.
This new support plan comes just days after the presentation of figures showing that the economic situation continues to deteriorate. Retail sales slowed to +2.1% year-on-year in August, compared with +2.7% the previous month, while industrial production only increased by 4.5% last month, compared with 5.1% in July. Consumer prices (+0.6% year-on-year in August) show the fragility of demand after four months of deflation last winter. As for the fall in industrial prices over the last twenty-three months (-1.8% year-on-year in August), it reflects the difficulties faced by companies and is materialised in certain sectors through wage cuts.
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