China is doubling down on stimulus to end an economically disastrous summer. With utility knife in hand, Beijing authorities have announced steps on various fronts in recent days to boost market and consumer confidence. The People’s Bank of China (PBOC, the central bank) announced this Friday that it is reducing the reserve ratio for foreign exchange deposits of financial institutions by two percentage points (from the current 6% to 4%). The measure aims to free up foreign currency funds to halt the fall of the yuan, which has depreciated 14% against the euro over the past year and 5% against the dollar since its peak in January.
This provision is among a series of proposals to provide relief to homebuyers in a bid to revive the ailing brick sector. The central bank authority and the National Financial Regulation Administration jointly announced on Thursday that they are lowering the initial disbursement requirements (the participation fee) for those taking out a mortgage for the first and second time to purchase a property; Buyers will also be able to renegotiate a rate cut on their mortgage loans from September 25th.
Some of the main state banks immediately responded that they would comply with the new legal requirements and, in some cases, indicated that they would enable certain platforms for customers to process the discount. Additionally, in recent days, several megacities (Guangzhou, Shenzhen, Beijing and Shanghai) have proposed relief measures to boost mortgage financing. And at the same time, various financial institutions have announced their plans to reduce the interest rates they pay on deposits from this Friday, according to the Chinese business newspaper Caixin, and are launching a third round of interest rate cuts from September 2022 “under pressure from the government to encourage spending rather than savings “to support the weakened economy,” the newspaper reports.
The real estate sector, the jewel in the crown of China’s growth, which accounts for almost a quarter of the country’s GDP and whose state is a reflection of the general situation, has recorded months of slowdown, while some construction giants such as Evergrande and Country Garden They are staring into the abyss. The latter, the country’s largest real estate company, this week announced losses of 48,932 million yuan (6,145 million euros) in the first half of the year, which it said were due to “the decline in the sector” as capital markets “have not yet recovered” confidence “, which led to “increasing pressure on the company’s operations.”
Meanwhile, Evergrande’s main subsidiary Hengda Real Estate announced on Thursday that it is facing at least 1,931 lawsuits for an amount of 437,743 million yuan (56,430 million euros), according to a notice to the Hong Kong Stock Exchange listed) and collected by EFE. The group, which has been facing serious financial problems for years, reported on Sunday losses of 33,012 million yuan (4,198 million euros) in the first half of 2023. Just a week earlier, the company announced that it would comply with statutory bankruptcy in the United States .
The stimulus measures are aimed at providing relief for what Chinese leaders have described as a “difficult” recovery that has not materialized as expected after emerging from strict health restrictions in late 2022.
GDP continues to show signs of slowing down after the Corona crisis. In the second quarter of the year, the Asian engine lost steam and only grew by a meager 0.8% compared to the previous quarter. That undermined Beijing’s 2023 target of around 5% annual growth. Exports fell 14.5% and prices fell into negative territory for the first time in more than two years.
At a meeting of the Politburo, one of the highest organs of power, held at the end of July under the leadership of Chinese President Xi Jinping, the communist leaders recognized that the country was facing “insufficient domestic demand, difficulties in the operation of some companies, multiple risks in key areas and a complex and difficult external environment.” At the meeting, the leaders called for the implementation of measures to boost consumption, the cornerstone of the economy, and revive a struggling real estate sector that is facing “significant changes in the relationship between supply and demand.” is, according to the statement collected by the party’s official Xinhua agency.
One of the first moves in the complex economic body was the appointment of Pan Gongsheng as the new governor of the People’s Bank of China (just a day after the Politburo meeting and on the same day that the still-missing Qin Gang was fired as foreign minister). ); A few weeks later, in mid-August, the institution unexpectedly announced a 15 basis point cut in the interest rate on its one-year bank loans to 2.5%, the largest adjustment since 2020.
The new governor of the BPC also met in Beijing this Friday with the Executive Director of the International Monetary Fund, Kristalina Georgieva. “I look forward to further deepening our commitment to the BPC under your leadership to address the many global challenges we face,” Georgieva wrote on social media. 0.2% this year, above the barely 3% of the still-pandemic 2022.
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