BEIJING, Feb. 11 (Xinhua) — China’s central bank has unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, underscoring growing concern within Xi Jinping’s government over slowing growth and falling investor confidence.
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People’s Bank of China Governor Pan Gongsheng cut the key short-term interest rate and announced plans to reduce the amount of cash banks must hold in reserves to the lowest level since at least 2018, appearing at a rare briefing alongside two of the country’s other top financial regulators in Beijing. It was the first time cuts to both measures have been disclosed on the same day since at least 2015.
The moves were followed by a series of other announcements that fueled gains in China’s battered stock market. The central bank chief also unveiled a package to support the country’s ailing property sector, including cutting borrowing costs on up to $5.3 trillion in mortgages and easing rules on second-home purchases.
The central bank will provide at least 800 billion yuan ($113 billion) in liquidity support for the country’s stocks, Pan said, adding that officials are considering setting up a market stabilization fund.
While many of the measures were expected by investors, the widely publicized rollout showed that the authorities were taking seriously warnings that China risked missing its growth target of around 5% this year. The tightening policies are likely to bring the target back within reach, but doubts remain about whether they will be enough to break China’s longer-term deflationary pressures and deepening property woes.
Authorities have yet to unveil more aggressive measures to boost consumer demand, which some analysts see as a key missing piece for the economy.
“It is difficult to identify a silver bullet that will help solve everything,” said Ken Wong, Asia equity portfolio specialist at East Spring Investments Hong Kong Ltd. “While it is good to have loose monetary easing measures, more needs to be done to help boost growth in the fourth quarter.”
China’s benchmark CSI 300 stock index rose about 4%, coming close to erasing losses for the year, though the index is still down more than 40% from its recent peak in 2021. Commodity markets gained and the yuan was little changed against the dollar. China’s 10-year bond yield rose about 3 basis points to 2.06%, erasing an earlier drop to a record low.
Policymakers in Beijing have been trying to revive the economy without resorting to the fiscal stimulus that China used in previous recessions, but such piecemeal efforts have been ineffective. Growth recently slowed to its worst pace in five quarters – a deterioration that is testing the leadership’s ability to withstand missing its key annual target for the second time in three years.
“The purpose of today’s briefing is to instill confidence in the market, based on the fact that the authorities have unveiled a series of measures,” said Larry Hu, head of China economics at Macquarie Group Ltd. “The stimulus campaign will still need to be coordinated with other policies — especially follow-on policies on the fiscal side.”
What Bloomberg Economics says:
This will be a memorable day for Chinese monetary policy. The People’s Bank of China has rolled out a series of measures, from cutting interest rates and reserve requirements to providing central bank funding for investors to buy stocks. Each step is significant. Doing them all at once is highly unusual and signals the urgency Beijing feels to avoid deflation risks and get growth on track to meet this year’s 5% target… We estimate the boost to growth in 2024 to be around 0.2 basis points, with most of the impact coming in 2025.
Zhang Xu, Chinese economist
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The Federal Reserve’s larger-than-expected half-percentage-point interest rate cut has given central banks across Asia more room to act. But lowering money rates won’t lift the economy if Chinese consumers don’t want to spend, as layoffs loom amid weak corporate profits and falling property prices. New home prices fell by the most since 2014 last month.
Now Ban’s decisive push for accelerating monetary policy paves the way for the finance ministry to unveil its own attempt to defend the growth target. A sharp drop in revenue from land sales has curbed fiscal spending this year, crippling the ability of debt-laden local governments to invest in growth-boosting projects.
“It’s far from a rocket launcher,” said Raymond Young, chief economist for Greater China at ANZ Bank, of the package. “We’re not sure how much lower mortgage rates will be able to stimulate a property market recovery.”
China’s central bank governor unveiled the major policy shift at his first high-profile news conference since March, appearing alongside securities regulator Wu Zheng and Li Yunzhi, head of the National Financial Regulatory Administration. The trio used their public debut to launch moves to shore up investor sentiment and halt a sell-off in the stock market.
This included new financial instruments to expand liquidity for shares, which would help listed companies and major shareholders buy back shares and increase holdings.
The People’s Bank of China chief has shown a more transparent approach to policy, with Ban on Tuesday effectively mapping out interest rate cuts and policy moves for the rest of the year. He used a similar briefing in January to announce a cut in the reserve requirement ratio two weeks before it was due to take effect, as authorities tried to stem a stock market rout.
“Monetary policy easing has been more aggressive than expected,” said Becky Liu, head of China macro strategy at Standard Chartered. “We see scope for more aggressive easing in the coming quarters, following the Fed’s massive rate cuts.”
–With the assistance of James Major, Ocean Ho, Alan Wong, Wenjin Lv, April Ma, and Iris Ouyang.
(Updates with details throughout)
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