China’s Economic Reboot: Latest Government Measures to Boost Growth
In a bold move to rejuvenate the economy, China recently announced some of the most significant cuts to benchmark lending rates in years. The government is intensifying its efforts to kickstart growth and achieve its target of approximately 5% GDP growth by the end of the year.
Key highlights from the recent announcement include:
- The one-year loan prime rate reduced to 3.1% from 3.35%, marking the largest cut on record.
- The five-year LPR lowered to 3.6% from 3.85%.
- These rates serve as the reference points for consumer and business loans, as well as mortgages since 2019.
The recent rate cuts reflect the growing urgency among policymakers to restore economic confidence in the face of a property market slowdown, deflationary pressures, and tepid consumer demand. This move follows a series of easing measures introduced in September, representing the government’s most assertive intervention since the onset of the pandemic.
Becky Liu, head of China Macro Strategy at Standard Chartered, commented on the rate cuts, stating, “Today’s move echoes our view that the PBoC will be cutting rates more decisively.” The necessity for such actions is underscored by the pressure on policymakers to meet the GDP growth target set for 2024.
Economists are urging for further intervention, including fiscal stimulus and increased support for households, to stimulate economic growth. China’s recent third-quarter GDP figures revealed growth of just 4.6%, prompting calls for more aggressive measures.
Pan Gongsheng, PBoC governor, had hinted at further easing measures before the year’s end. In September, he had announced reductions to the seven-day repo rate and the reserve requirement ratio. The potential for further rate cuts remains, with the aim of bolstering bank lending and spurring economic activity.
UBS has revised its full-year GDP growth forecast for China to 4.8%, citing a potential improvement in household and corporate confidence as a result of anticipated policy measures and stabilization in the property market.
Following the announcement, China’s CSI 300 index saw a modest 0.3% increase in early trading, while the CSI 2000 index experienced a more substantial 2.8% gain. In contrast, Hong Kong’s Hang Seng index faced a 1.2% decline.
The recent government measures signal a concerted effort to revitalize China’s economy and pave the way for sustainable growth and stability in the coming months. As policymakers continue to implement strategic interventions, the focus remains on bolstering economic recovery and restoring confidence among businesses and consumers alike.
