(Bloomberg) -- China gave its economy a shot in the arm with an extraordinary flurry of stimulus measures this week. The moves range from monetary easing to support for the struggling real estate sector. While some details are missing, the unusual pace and intensity of the announcements signaled a sense of urgency in Beijing to put growth on track for the around 5% target, buoying market sentiment.
Here are the key measures unveiled and reported so far — and what more to expect.
Interest Rate Cuts
The People’s Bank of China cut its seven-day policy rate on Friday, three days after Governor Pan Gongsheng announced steps to lower borrowing costs to spur growth at a hastily-arranged press conference.
The cut in the seven-day reverse repurchase rate, to 1.5% from 1.7%, will be accompanied by a reduction in the loan prime rates and deposit rates, Pan said at the briefing on Tuesday.
The next day, China’s central bank delivered the biggest-ever decrease to the interest rate charged on its one-year policy loans, known as the medium-term lending facility.
The one-year LPR, which is a benchmark for corporate and household credit like mortgages, is scheduled to be announced on Oct. 21.
The Politburo, China’s top decision-making body, called for a “forceful” implementation of rate cuts on Thursday. That signals further easing could be on the table.
RRR Cuts
The Chinese central bank also cut the amount of cash banks must keep in reserve on Friday, a move Pan telegraphed earlier this week.
The monetary authority reduced the reserve requirement ratios by 0.5 percentage point, freeing up money for banks to make more loans.
Further RRR cuts are still possible by the end of the year, according to Pan.
Property Support
Pan announced plans for a cut to outstanding mortgage rates by an average of half a percentage point. The minimum down-payment ratio on second-home purchases will also be lowered to 15% from 25%, matching the requirement for first homes.
Homeowners will be able to renegotiate terms with their current lenders, Pan said. Regulators will consider whether to allow borrowers to refinance with a different bank for the first time since the global financial crisis. The resulting competition may lower borrowing costs for home-buyers.
Separately, the PBOC will ramp up its re-lending program for state-owned firms to acquire unsold property inventory. It will now provide 100% of the principal of bank loans for such purchases, up from 60% announced in May, Pan said.
Details will be announced through documents on the central bank’s website “in the near term” as well, according to Pan.
The Politburo pledged action to make the real estate market “stop declining,” its strongest vow yet to stabilize a sector that makes up the bulk of household wealth.
China is also considering removing some of the largest remaining restrictions on home purchases after previous measures failed to revive a moribund housing market, Bloomberg News reported last week.
Regulators are working on a proposal that would allow mega cities such as Shanghai and Beijing to relax restrictions for non-local buyers — those who don’t have a so-called Hukou residence permit for that location — according to people familiar with the matter.
Stocks
Pan promised several measures to support the stock market:
- A swap facility allowing securities firms, funds and insurance companies to tap PBOC money to purchase equities. This will be worth an initial 500 billion yuan ($71 billion), with a possible ceiling of 1.5 trillion yuan
- A re-lending facility for listed companies and major shareholders to buy back shares and raise holdings. This will be be worth an initial 300 billion yuan, with a possible ceiling of 900 billion yuan
- A possible stabilization fund
Pan said details for the first two facilities will be released on the PBOC website, and that the stock stabilization fund is under consideration.
China Securities Regulatory Commission Chairman Wu Qing added at the press conference that new measures to encourage mergers and acquisitions will be unveiled soon.
Capital Injection for Major Banks
Authorities will add the core tier 1 capital to six major commercial banks, Li Yunze, minister of the National Financial Regulatory Administration, said at the press conference alongside Pan, without elaborating.
Those would be the Industrial & Commercial Bank of China Ltd., Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp., Bank of Communications Co., and Postal Savings Bank of China Co.
Bloomberg News later reported that the injection could be up to 1 trillion yuan of capital, with the funding mainly coming from the issuance of new special sovereign bonds.
The move still hasn’t been officially announced. When it comes, it will be the first time since the global financial crisis in 2008 that Beijing has injected capital into its big banks.
Special Sovereign Bonds
The Politburo urged officials to “issue and make good use” of the ultra-long special sovereign bonds and local special notes to drive investment. Local governments have accelerated bond issuance since August after keeping the pace slow, as they struggled to find quality projects to invest in while trying to reduce debt risks.
Reuters reported late Thursday that the Ministry of Finance is planning to issue 2 trillion yuan of special sovereign bonds this year. That funding will be evenly split between stimulating consumption and helping local governments tackle debt problems, Reuters said, citing two people familiar with the matter.
The government has made no official announcement on this yet. Last year, China’s top legislative body used its October session to authorize the issuance of 1 trillion yuan in additional special government bonds.
--With assistance from Wenshan Luo, Fran Wang and Wenjin Lv.
©2024 Bloomberg L.P.
