China moves to boost ailing economy with property, stimulus measures

China’s financial authorities on Tuesday unleashed an unusually broad raft of measures designed to inject new momentum into the world’s second largest economy.

These measures — which include cutting interest rates and supporting the beleaguered property and stock markets — come amid signs the Chinese economy will fail to grow at the government’s target rate of 5 percent this year.

The People’s Bank of China’s decision to cut its benchmark interest rate comes less than a week after the U.S. Federal Reserve cut interest rates by half a point.

The decision showed China’s central bank had shifted from a “hang in there until Fed blinks” stance, said Larry Hu of Macquarie Insights, to one of “fight deflation now.”

A slew of recent data has revealed the China economy is slowing faster than expected: Growth in industrial output and retail sales has slowed, while the stock market and investment in real estate took a nosedive. Unemployment is up, and deflation remains an urgent issue.

China’s ability to achieve this year’s growth target of about 5 percent is now in doubt. Goldman Sachs and Citigroup have both cut their projections for Chinese economic growth this year to 4.7 percent, while Morgan Stanley expects only 4.6 percent.

Pan Gongsheng, governor of the People’s Bank of China, said that Tuesday’s stimulus measures were designed to “support the stable growth of the Chinese economy.”

“An important factor to consider is that we need to promote a moderate recovery in prices,” he told a news conference in Beijing on Tuesday.

While some analysts doubted that the stimulus measures would be enough to revive the moribund economy, markets reacted favorably to the news. China’s benchmark CSI 300 stock market index and Hong Kong’s Hang Seng Index both rose almost 4 percent on the news, hitting a level not seen since the start of 2022, while the Chinese yuan reached a 16-month high against the dollar.

Among the broad package of measures aimed at reenergizing the property market, which until recently accounted for almost one-quarter of the economy and has been a key driver of middle-class wealth, the PBoC said mortgage rates will be lowered by about half a point and the minimum down-payment required for second-time home buyers will be reduced from 25 to 15 percent.

The most significant element of the package is probably the repricing of existing mortgages, which is estimated to save households $21 billion in interest costs annually and could unleash spending needed to boost the economy, analysts at Gavekal Dragonomics, a research firm, wrote in a note.