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.
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", 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."
- 'Most significant stimulus' in years -
Shares in Hong Kong and Shanghai rallied Tuesday after China unveiled the measures.
But Heron Lim Shi Shun 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".
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 ailing sector, including cutting the minimum down payment rate for first-time homebuyers and suggesting the government could buy up commercial real estate.
But 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.
Speaking alongside the central bank chief Tuesday, Director of the National Administration of Financial Regulation Li Yunze 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.
Hong Kong, Shanghai rally on China stimulus on mixed day for markets
Hong Kong (AFP) Sept 24, 2024 -
Hong Kong and Shanghai stocks rallied Tuesday after China unveiled fresh stimulus measures as the country's leaders struggle to kickstart growth in the world's number two economy.
After a string of weak data that has fanned worries about the financial health of the country and led to calls for more help to boost growth, the central bank said it would make it easier for lenders and lower a key interest rate.
The decision came as traders were already upbeat after the Federal Reserve last week lowered borrowing costs for the first time since 2020 and indicated more were in the pipeline through to 2026.
China's economy, the world's second-largest, has yet to achieve a highly anticipated post-pandemic recovery as it is battered by a prolonged property sector debt crisis, continued deflationary pressure and high unemployment.
While Beijing has resisted calls to unveil a so-called bazooka stimulus similar to that seen during the global financial crisis, it has pushed through a series of piecemeal measures that appear to have done little to turn things around.
People's Bank of China chief Pan Gongsheng told a news conference that "the reserve requirement ratio will be cut by 0.5 percentage points in the near future to provide long-term liquidity to the financial market of about one trillion yuan ($141.7 billion)".
It will also "lower the interest rates of existing mortgage loans and unify the down payment ratios for mortgage loans", he added.
Hong Kong stocks jumped more than two percent and Shanghai was up around 0.8 percent.
There were also gains in Tokyo as dealers returned from a long weekend, while Singapore and Manila also rose, but Sydney, Seoul, Taipei and Wellington retreated.
The advances came after a positive day on Wall Street, where the Dow and S&P 500 ended at new record highs.
Traders are awaiting the release Friday of the personal consumption expenditures index -- the Fed's preferred inflation metric -- hoping for an idea about its next rate move.
After Wednesday's bumper 50-basis-point cut, debate is now swirling about how big monetary policymakers will go at their next meeting.
Minneapolis Fed boss Neel Kashkari said he was for another big reduction owing to weakness in the labour market, while his Chicago counterpart Austan Goolsbee added that slowing jobs growth would likely mean there were many more cuts to come.
Atlanta Fed chief Raphael Bostic said he wanted to base his decision on incoming data.
- Key figures around 0230 GMT -
Tokyo - Nikkei 225: UP 0.7 percent to 37,974.98 (break)
Hong Kong - Hang Seng Index: UP 2.3 percent to 18,673.74
Shanghai - Composite: UP 0.8 percent to 2,770.82
Euro/dollar: DOWN at $1.1107 from $1.1113 on Monday
Pound/dollar: UP at $1.3349 from $1.3345
Dollar/yen: UP at 143.66 yen from 143.57 yen
Euro/pound: DOWN at 83.20 pence from 83.27 pence
West Texas Intermediate: UP 0.6 percent at $70.80 per barrel
Brent North Sea Crude: UP 0.6 percent at $74.31 per barrel
New York - Dow: UP 0.2 percent at 42,124.65 points (close)
London - FTSE 100: UP 0.4 percent at 8,259.71 (close)
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