China’s central bank has unveiled a broad package of stimulus measures, cutting the cost of existing mortgages and lowering a key interest rate.
The measures, which will also make lending easier by cutting the amount of cash banks need to hold in reserve, come amid warnings that China could miss its gross domestic product (GDP) growth target for 2024 of about 5 per cent.
A three-year long property market slump and a weak labour market have dampened consumer confidence, contributing to a slowdown in economic growth.
But Pan Gongsheng, governor of the People’s Bank of China (PBOC) said guiding lenders to lower interest rates on existing home loans by about 0.5 points should boost consumer spending.
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“The reduction in existing mortgage interest rates is expected to benefit 50 million households or 150 million people, reducing household interest expenses by an average of about 150 billion renminbi (€19 billion) per year, which will efficiently boost consumption and investment,” he told a press briefing in Beijing on Tuesday.
The minimum down payment for buying a second home will be cut from 25 per cent to 15 per cent, the same level as for first homes. And the central bank will fully fund a 300 billion renminbi scheme to enable state-owned enterprises to buy unsold apartments for use as affordable housing.
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The reserve requirement ratio (RRR) – the amount of cash banks must hold in reserve – will also be cut by 0.5 points, a move Mr Pan said would add one trillion renminbi in liquidity to the banking system. He suggested there could be a further RRR cut of 0.25 or 0.5 points later this year.
The seven-day reverse repo rate, a key short-term interest rate, will drop to 1.5 per cent from 1.7 per cent and benchmark lending and deposit rates will be guided downwards.
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“Capital will be injected to different banks in turns and with different policies,” said Li Yunze from the National Financial Regulatory Administration, China’s new financial services regulator, who joined Mr Pan at the briefing.
The central bank governor announced an 500 billion renminbi fund to help stockbrokers, insurance companies and funds to buy equities and the bank will provide a further 300 billion renminbi to help companies to conduct share buy-backs.
Mr Pan said the authorities were looking at the idea of a state-backed stabilisation fund which could help to reinforce confidence in equity markets.
China’s CSI 300 stock market index rose by 4.3 per cent on the back of the announcement, which was unusual in terms of the number and range as well as the significance of the measures unveiled at the same time.
But as investor confidence in China has fallen, the CSI 300 index is down 4 per cent since the beginning of this year and has lost about a third of its value over the past three years.
Recent weeks have seen a succession of disappointing economic data in China and Tuesday brought news the youth unemployment rate hit a record high in August for the second month in a row.
The National Bureau of Statistics (NBS) said that 18.8 per cent of Chinese people in urban areas between the ages of 16 and 24, excluding students, were unemployed.
The overall urban unemployment rate rose slightly to 5.3 per cent and the NBS said the increase was mainly due to college graduates entering the labour market. A record 11.8 million people graduated from Chinese third-level institutions this summer, many of them entering the weakest job market the country has seen for years.
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