China’s economy is struggling with a protracted debt crisis in the real estate sector, and hopes of a post-pandemic recovery have yet to materialize (Jade Gao)
The People’s Bank of China on Tuesday announced a series of measures to jump-start the country’s sluggish economy, cutting the amount of cash banks must hold as reserves and slashing key interest rates.
The world’s second-largest economy has been hit by a protracted debt crisis in the real estate sector, continuing deflationary pressures and high unemployment, with hopes of a post-pandemic recovery yet to materialize.
The country’s leaders have set a target of 5% growth for 2024, but analysts say that target is too optimistic given the headwinds the economy faces.
People’s Bank of China Governor Pan Gongsheng said at a news conference in Beijing on Tuesday that the central bank would implement a series of interest rate cuts aimed at boosting growth.
“China will reduce the reserve requirement ratio and policy interest rate, lowering the market benchmark interest rate,” Pan said.
“The reserve requirement ratio will likely be reduced by half a percentage point in the near future,” he said.
He said the move would inject about 1 trillion yuan ($141.7 billion) of “long-term liquidity” into financial markets.
“Beijing will cut interest rates on existing mortgages and standardize down payment ratios for mortgages,” he added.
It also said it would “instruct commercial banks to lower interest rates on existing home loans to a level close to that of new loans.”
Stocks in Hong Kong and Shanghai rose at the open on Tuesday after China announced the measures.
Real estate and construction have long accounted for more than a quarter of China’s gross domestic product, but the sector has come under unprecedented pressure since 2020 as authorities tightened credit access for developers in an effort to curb rising debt.
Since then, major companies such as China Evergrande and Country Garden have been in financial trouble, and falling prices have discouraged consumers from investing in property.
China’s government has announced a series of measures to boost its ailing housing sector, including lowering the minimum down payment rate for first-time home buyers and hinting at possible government buyups of commercial property.
China’s local governments have a ballooning debt burden of $5.6 trillion, according to the central government, which is adding to the burden and raising concerns about the overall stability of the economy.
Speaking alongside the People’s Bank of China governor on Tuesday, State Financial Regulatory Administration director Li Yunze said Beijing would “actively assist in resolving real estate and local government debt risks.”
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“China’s financial industry, especially the major financial institutions, are operating stably and risks are controllable,” he argued.
“We will remain firm in our bottom line of preventing risks to the financial system as a whole,” he added.
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