A hastily convened, joint press conference with several Chinese economic officials on Tuesday unveiled a raft of stimulus measures designed to inject confidence back into China’s deflating economy. The blitz of interest rate cuts, funding for the stock market and support for the property sector amounts to the most aggressive economic package from the world’s second-largest economy since the Covid pandemic.
The shock and awe of it all excited investors. China’s CSI 300 share index jumped 4.3 per cent on Tuesday, its best day since July 2020. Global stocks also pushed higher. But what matters more for China and the global economy is whether the package can jump-start the substantive and sustainable boost to demand that the country desperately needs. By that measure, Beijing’s latest economic salvo does not go far enough.
Starting with the monetary measures, the People’s Bank of China (PBoC) announced a 50 basis point cut to banks’ required reserve ratios and made cuts to lending, mortgage and deposit rates. Together these measures should boost liquidity in the banking system and may support loan activity. Yet with businesses and households still eager to de-lever, as the fallout from China’s property market correction continues, a significant boost to loan demand would probably require heftier cuts to lending rates, particularly as real rates remain elevated as inflation has fallen.