China unveils measures to revive economy

China’s central bank has introduced a significant package of measures aimed at rejuvenating the country’s struggling economy. The People’s Bank of China (PBOC), led by Governor Pan Gongsheng, announced a series of initiatives designed to lower borrowing costs and encourage banks to increase lending.

Economic context

This move comes in response to a series of disappointing economic data, raising concerns that China may fall short of its 5% growth target for the year. The announcement positively impacted Asian stock markets, with share prices surging following Mr. Pan’s address.

Key measures introduced

During a rare press conference, alongside officials from two other financial regulatory bodies, Mr. Pan highlighted several crucial steps:

1. Reserve Requirement Ratio (RRR) Cut:
   The PBOC will reduce the cash reserves that banks must hold by 0.5 percentage points. This adjustment is expected to release approximately 1 trillion yuan (around $142 billion or £106 billion) into the economy.
2. Potential Future Cuts:
   Mr. Pan indicated that additional cuts to the RRR could be implemented later in the year to further stimulate economic growth.
3. Support for the Property Market:
   The new measures also aim to address the challenges facing China’s beleaguered real estate sector. Key actions include:
   • Reducing interest rates on existing mortgages.
   • Lowering the minimum down payment for home purchases to 15%.

Impact on the real estate sector

China’s real estate industry has been in a prolonged downturn since 2021, with numerous developers facing insolvency. This has resulted in a significant number of unsold homes and unfinished construction projects, necessitating government intervention.

Market reactions

The PBOC’s announcement came shortly after the US Federal Reserve’s decision to cut interest rates for the first time in over four years, leading to a boost in share prices. Major stock indexes in Shanghai and Hong Kong saw an increase of more than 4% following the news.

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