On 24 September 2024, China unveiled its largest stimulus in years in an effort to revive its struggling economy amid a sharp property downturn and falling consumer confidence.
At a press conference in Beijing, People’s Bank of China (PBOC) governor Pan Gongsheng introduced a series of monetary reforms designed to boost investment and consumption.
Reserve requirement ratio (RRR) reduction
The PBOC will reduce the RRR – the amount of money banks must keep aside and cannot lend out – by 50 basis points, which will release approximately CNY 1 trillion (£107 billion) for new lending. This reduction may be followed by a further cut of 0.25 to 0.5 percentage points later in the year, depending on market liquidity.
Interest rate cuts
The seven-day reverse repo rate – the interest rate at which the PBOC lends money to commercial banks for short periods, using government bonds as collateral – will be lowered from 1.7% to 1.5%. Other key rates will also be cut to encourage borrowing.
Mortgage and property market support
Average interest rates for existing mortgages will be reduced by 50 basis points. Furthermore, the minimum down payment requirement for second homes will be cut from 25% to 15%.
A CNY 300 billion (£31.9 billion) fund, introduced in May and initially 60% funded by the central bank, will now be fully funded by the central bank to encourage local governments to purchase unsold homes and convert them into subsidised housing.
Capital market tools
A CNY 500 billion (£53.3 billion) swap programme will be introduced, allowing companies (funds, insurers, and brokers) to provide assets like shares or bonds as collateral to the central bank in exchange for credit or cash, enabling them to access liquidity more easily for stock purchases.
A separate CNY 300 billion facility will offer cheap PBOC loans to commercial banks to finance share purchases and buybacks.
Response
Global equities reacted positively to the news, reaching record highs, with Asian, European, luxury, car, and mining stocks benefiting the most.
According to analyses of the stimulus measures published by outlets including SCMP and Reuters, economists have largely welcomed the measures, although some have argued that they are insufficient to fully revive the economy.
Experts suggest that fiscal, rather than monetary, stimulus has historically been more effective and may still be necessary to meet the 5% growth target for 2024.
