China unveils fresh stimulus to boost ailing economy

Published September 24, 2024
Pan Gongsheng, Governor of the People’s Bank of China, speaks during a press conference — AFP File Photo
Pan Gongsheng, Governor of the People’s Bank of China, speaks during a press conference — AFP File Photo

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 per cent growth in 2024 — an objective analysts say is optimistic given the headwinds it is facing.

On Tuesday, central bank chief Pan Gongsheng told a news conference in Beijing that it 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.

But “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 moves unveiled 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”. And it will “guide commercial banks to lower the interest rates of existing mortgage loans to the vicinity of the interest rates of newly issued loans”.

The move would benefit 150 million people across the country, Pan said, and reduce “the average annual household interest bill by about 150 billion yuan”.

More cash please

Shares in Hong Kong surged more than three pc and Shanghai more than two pc after China unveiled the measures.

But Heron Lim at Moody’s Analytics said the move was expected given gloomy economic data in recent months suggesting 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 added, “broader direct household support in helping them consume more goods will be useful, which is currently just too narrowly designed for industrial goods”.

Another analyst said the “measures are a step in the right direction”.

“We continue to believe that there is still room for further easing in the months ahead,” said Lynn Song, chief economist for Greater China at ING.

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.

Since then, major companies including China Evergrande and Country Garden have teetered, 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.

But those 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.

Speaking alongside the central bank chief Tuesday, Li Yunze, director of the National Administration of Financial Regulation, said Beijing will “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 insisted.

“We will firmly maintain the bottom line of preventing systemic financial risks,” he added.

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Flying ban reversal
Updated 01 Dec, 2024

Flying ban reversal

Only the naive can expect the reinstatement of European operations to help restore PIA’s profitability.
Kurram conflict
01 Dec, 2024

Kurram conflict

DESPITE a ceasefire being in place, violence has continued in Kurram tribal district. The latest round of bloodshed...
World AIDS Day
01 Dec, 2024

World AIDS Day

IT is a travesty that, decades after HIV/AIDS first perplexed medics, awareness about the disease remains low in...
PTI in disarray
Updated 30 Nov, 2024

PTI in disarray

PTI’s protest plans came abruptly undone because key decisions were swayed by personal ambitions rather than political wisdom and restraint.
Tired tactics
30 Nov, 2024

Tired tactics

Matiullah's arrest appears to be a case of the state’s overzealous and misplaced application of the law.
Smog struggle
30 Nov, 2024

Smog struggle

AS smog continues to shroud parts of Pakistan, an Ipsos survey highlights the scope of this environmental hazard....