China’s central bank unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, underscoring mounting alarm within Xi Jinping’s government over slowing growth and depressed investor confidence. People’s Bank of China governor Pan Gongsheng cut a key short-term interest rate and announced plans to reduce the amount of money banks must hold in reserve to the lowest level since at least 2018, appearing at a rare briefing alongside two of the country’s other top financial regulators in Beijing. That marked the first time reductions to both measures were revealed on the same day since at least 2015. Those moves were followed by a slew of other announcements that fueled gains in China’s beleaguered equity market. The central bank chief also unveiled a package to shore up the nation’s troubled property sector, including lowering borrowing costs on as much as $5.3 trillion in mortgages and easing rules for second-home purchases. For the nation’s stocks, Pan said the central bank will provide at least 800 billion yuan ($113 billion) of liquidity support, adding that officials were studying setting up a market stabilization fund. While several of the measures had been anticipated, the highly publicized rollout showed authorities are taking seriously warnings that China risks missing its growth target of around 5% this year. The policy barrage likely puts that goal back within reach, but doubts remain whether it was enough to break China’s longer-term deflationary pressure and entrenched real estate crisis. “It’s hard to say what silver bullet can help resolve everything,” said Ken Wong, Asian equity portfolio specialist at Eastspring Investments Hong Kong Ltd. “While it’s good to have monetary easing measures that are accommodative, more needs to be done in order to help solidify fourth quarter growth.” Policymakers in Beijing have been trying to revive the economy without resorting to the bazooka stimulus China deployed in previous downturns, but piecemeal efforts have been ineffective. Growth recently slowed to its worst pace in five quarters — a deterioration that’s testing the leadership’s tolerance for missing its high-profile annual target for the second time in three years. “The purpose of today’s briefing is to inject confidence into the market, judging by the fact that the authorities revealed measures in one go,” said Larry Hu, head of China economics at Macquarie Group Ltd. “The stimulus push will still need coordination from other policies — particularly follow-up policies from the fiscal side.”
This will be a day to remember for China’s monetary policy. The People’s Bank of China unleashed a barrage of measures, from cuts to interest rates and reserve requirements to making central bank funding available for investors to purchase stocks.
Each individual step on its own is significant. Delivering them all at once is highly unusual and speaks to the urgency felt in Beijing to head off deflationary risks and get growth on track for this year’s 5% target … We estimate the boost to 2024 growth to be around 0.2 ppt, with most of the impact falling in 2025.
Chang Shu, Chief Asia economist
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Pan’s decisive display of ramped up monetary policy now sets the stage for the Finance Ministry to unveil its own bid to defend the growth target. A plunge in revenue from land sales has held back fiscal spending this year, crippling indebted local governments’ ability to invest in growth-boosting projects.
“It is too far from being a bazooka,” ANZ chief greater China economist Raymond Yeung said of the package. “We are not sure how much the mortgage rate cut will induce a property recovery.”
The central bank governor unveiled his big policy shift at his first high-profile press conference since March, appearing alongside securities regulator Wu Qing, and Li Yunze, head of the National Financial Regulatory Administration. The trio kicked off their first joint public briefing at 9 a.m. before China trading began, ensuring their roll out of steps to salvage investor sentiment and stem a selloff in equities had maximum impact on markets. Government briefings typically start later in the morning. Among their policies were new financial tools to expand liquidity for equities, which would help listed companies and major shareholders buy back shares and raise holdings. The PBOC chief also effectively mapped out monetary policy for the rest of the year, exemplifying his more transparent approach. Pan used a similar briefing in January to announce a RRR cut two weeks before it was effective, as authorities tried to halt a stock-market rout.
