They Chinese government rolled out a number of major policy measures to support the country's economy, the housing market and the stock market, including cuts to the policy rate and the reserve requirement ratio (RRR), all aimed at creating a favorable monetary and financial environment for stable economic growth and high-quality development. On September 26, the Political Bureau of the Communist Party of China (CPC) held a meeting to analyze and study the current economic situation and make further arrangements for economic work. It was noted at the meeting that the fundamentals of the Chinese economy, and favorable conditions such as a vast market, strong economic resilience and great potential, remain unchanged. At the same time, a new situation and problems have emerged in the current economic operation. It is necessary to take a comprehensive, objective and calm view of the current economic situation, face the difficulties squarely, remain confident, and effectively enhance the sense of responsibility and urgency to do a good job in economic work, it was said at the meeting. The meeting made specific arrangements on how to enhance countercyclical fiscal measures, assist enterprises in overcoming challenging circumstances, and address people's basic living needs. A vow to help tide over enterprises facing hardships, and a reassurance to officials that they can go bold in boosting the economy without worrying about the consequences of making mistakes, were among the highlights of the top decision-making meeting.
On September 29, the People's Bank of China (PBOC) announced a significant reduction in mortgage rates for existing home loans, with an average of 0.5 percentage points. The adjustment aims to align the rates of existing loans with the national average for newly issued mortgages, thereby easing the interest burden on borrowers. Commercial banks are required to carry out the adjustment for eligible existing mortgages by October 31. There will no longer be any difference between first-time and second-time home purchases, and the minimum down payment is now set at no less than 15%. In several cities, restrictions for non-resident families and individuals are also being relaxed.
Described by some foreign media as “broader-than-expected,” the major policy measures send a strong signal of the Chinese policymakers' determination to ensure stable economic growth, which will boost market confidence in the country's economic development in the rest of the year, economists said. Crucially, the strong policy support has further raised expectations that the world's second-largest economy will be able to achieve its annual growth target of around 5% in 2024, despite downward pressure and external uncertainties, according to economists.
Chinese stocks closed significantly higher on September 24, with the benchmark Shanghai Composite Index up 4.15%, marking the biggest single-day gain in over four years, while the Shenzhen Component Index rose 4.36%. By the end of the week, the index had gained nearly 13% over five trading days. The combined trading value at the Shanghai and Shenzhen exchanges exceeded CNY1.4 trillion, the third consecutive trading day topping CNY1 trillion.
Pan Gongsheng, Governor of the People's Bank of China (PBOC), announced that China will cut the RRR – the amount of cash that banks are required to hold as reserves – by 0.5 percentage points in the near future, which would inject about CNY1 trillion of long-term liquidity into financial markets. Pan added that the RRR could be cut by another 0.25-0.5 percentage points within the year depending on the market liquidity situation. In addition, the PBOC will lower the interest rate of seven-day reverse repos from 1.7% to 1.5%, while the interest rate for the medium-term lending facility will likely drop by about 0.3 percentage points, and the long-term lending facility and deposit rates will decrease by 0.2 to 0.25 percentage points.
Zhou Maohua, Economist with China Everbright Bank, told the Global Times that the policy rate and RRR cuts will release a reasonable level of liquidity, lower the financing costs for the real economy, and stimulate consumption and investment activities. 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 CNY150 billion per year, which will efficiently boost consumption and investment.
The Global Times notes that the CPC Central Committee's grasp of the economic situation and its underlying principles, as well as the timely introduction of a series of favorable policies, once again reflect two fundamental facts: first, the Chinese economy possesses strong resilience and immense potential, with various policy tools ensuring a stable and positive economic operation. Second, there are broad and profound connections between the Chinese economy and the world economy. China can only do well when the world is doing well. When China does well, the world will get even better.
This overview is based on reports by the Global Times, China Daily and South China Morning Post.
