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In an effort to boost economic growth, China's central bank unveils a massive monetary stimulus package, demonstrating its intention to revitalize the economy in the face of challenges faced globally.
China's central bank announced a robust monetary stimulus package in an effort to revive its economy, the world's second-largest, which has been struggling with a significant slowdown and falling investor confidence. Information from Bloomberg.
The series of measures announced reflects growing concern among Xi Jinping's government that China may not meet its economic growth target of around 5 percent this year.
Central Bank stimulus package
Pan Gongsheng, Governor of the People's Bank of China (PBOC), unveiled in a rare briefing alongside other financial regulators a series of measures that included cutting short-term interest rates and reducing the amount of cash banks need to hold in reserve.
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This move aims to free up more liquidity in the financial system, encouraging banks to grant more loans and thus stimulate economic activity. This was the first time since 2015 that these two measures were announced simultaneously.
In addition, a package was unveiled aimed at bolstering the country's real estate sector, which has been one of the hardest hit by the economic crisis. This includes reducing mortgage costs by up to $5,3 trillion and relaxing rules for buying second homes.
These announcements sparked optimism in China's stock market, resulting in a 4,3% rise in the CSI 300 stock index, nearly recovering losses accumulated throughout the year.
Support for the stock market and real estate sector
The real estate sector, crucial to China’s economic growth, has been in deep crisis, with property prices falling sharply and sales slowing. In response, the Chinese government has cut mortgage rates and eased restrictions on home purchases in an attempt to stimulate demand in the sector.
Pan Gongsheng also announced that the Chinese central bank would inject at least 800 billion yuan (about $113 billion) in liquidity support into the stock market, aiming to stabilize it.
Authorities are also considering the creation of a market stabilization fund, indicating growing concern about stock market volatility and the need to protect investors.
Despite the measures, there are doubts about their long-term effectiveness. Analysts point out that while monetary easing is a positive step, more needs to be done to boost consumer demand, a key element that has not yet been sufficiently addressed by the Chinese government.
Market reactions and future prospects
The market initially reacted positively to the measures, with stocks rising and the yuan holding relatively steady against the dollar. However, some economists warn that while the 5% growth target is closer with the measures, the deep-rooted housing crisis and long-term deflationary pressures remain major challenges.
Ken Wong, Asian equity portfolio specialist at Eastspring Investments, noted that while monetary easing is an important step, it is still difficult to foresee a sustained economic recovery without additional measures to boost consumer confidence and increase domestic demand.
China's economy has suffered weaker growth over the past five quarters, testing the government's ability to avoid missing its annual target.
Another factor contributing to the package of measures was the recent half-percentage-point cut larger than expected by the US Federal Reserve, which gave Asian central banks more room to implement their own stimulus policies without major inflationary pressure.
The Challenge of Domestic Demand in China's Economy
While the monetary measures taken by China's central bank are significant, many analysts agree that the real key to a sustainable economic recovery lies in increasing domestic demand.
Chinese household consumption has remained weak, largely due to falling property prices and uncertainty in the labor market, which has resulted in layoffs and pressure on wages.
New home prices, for example, saw their biggest decline since 2014 last month, further raising concerns among home buyers. consumers. Even with mortgage rate cuts, there are questions about how much of that will be enough to reverse the housing market's downward trend.
Christopher Beddor, deputy director of China research at Gavekal Dragonomics, said the stimulus package was significant but questioned whether authorities would adopt a wait-and-see approach, which could dampen initial market enthusiasm.
He suggests that the measures announced may be just the beginning of a series of more substantial policies to be implemented in the coming months.
The monetary stimulus measures announced by China’s central bank are a clear response to growing concerns about the country’s economic slowdown. While these are important steps, there are still significant challenges to be addressed, particularly with regard to the housing crisis and weak consumer demand.
The success of these policies will depend on their effective implementation and coordination with other areas, such as fiscal policy, to ensure that China can achieve its growth target and avoid prolonged deflationary pressure. Information from Bloomberg.
