There was a whiff of panic to the big moves by the People’s Bank today. China’s central bank cut a key short-term interest rate and announced plans to reduce the reserve ratio, the amount of money banks must hold in reserve, to the lowest level since at least 2018. This marked the first time reductions to both measures were revealed on the same day since at least 2015.
And that wasn’t all. The central bank also unveiled a package to shore up the nation’s troubled property sector–again–including lowering borrowing costs on as much as $5.3 trillion in mortgages and easing rules for second-home purchases.
Plus the central bank will provide at least 800 billion yuan ($113 billion) of liquidity support for China’s stocks, and officials are studying setting up a market stabilization fund.
So there’s no doubt that the government is taking seriously warnings that China risks missing its growth target of around 5% this year. Growth recently slowed to its worst pace in five quarters-—which puts the country at risk of missing its annual growth target for the second time in three years.
Together there’s a good likelihood that the measures will provide enough short-term stimulus to put that goal within reach.
But I doubt that even this bazooka is enough to break China’s longer-term deflationary pressures and entrenched real estate crisis.
And to end the depression among China’s consumers and the increasing pessimism among China’s college-educated young people.
There was nothing in this package to boost demand among consumers. Making money cheaper won’t lift the economy if Chinese consumers don’t want to spend because layoffs are looming amid sliding corporate profits and property prices are still falling. New home prices clocked their biggest decline last month since 2014.
Today China’s benchmark CSI 300 Index ended the session 4.3% higher, close to erasing losses for the year, though the gauge is still down more than 40% from its peak in 2021. Commodities markets gained and the yuan was little changed against the dollar. China’s 10-year bond yields rose 3 basis points to 2.06%, erasing an earlier decline to a record low.
On U.S. markets stocks with exposure to China’s economy rose Southern Copper (SCCO), for example, rose 7.22% on the belief that faster growth in China’s economy would increase demand for copper. Freeport McMoRan Copper & Gold (FCX) gained 7.93%.
