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BEIJING, CHINA – NOVEMBER 8: Pan Gongsheng, governor of the People’s Bank of China and head of the State Administration of Foreign Exchange, speaks during the Financial Street Forum 2023 Annual Conference on November 8, 2023 in Beijing, China. (Photo by VCG/VCG via Getty Images)
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Cutting the reserve requirement ratio (RRR) by 50 basis points will free up 1 trillion yuan ($139.8 billion) in long-term capital, the central bank said.
“The latest announcements (from the People’s Bank of China) can be interpreted as the beginning of a political turn from investors’ previous reactive and gradual measures, and they will continue to look for more signs and acts of political support,” said Tao Wang, director of economy and economics of Asia. UBS Investment Bank’s chief China economist said in a note Thursday.
Beijing has been reluctant to embark on massive stimulus, which would also widen the yield gap between China and the United States given the Federal Reserve’s tighter stance on monetary policy. The People’s Bank of China again kept the benchmark lending rate unchanged on Monday, keeping prime lending rates unchanged.
The magnitude of the central bank’s announcement Wednesday on the RRR cut exceeded Nomura’s forecast for a 25 basis point reduction, said the firm’s chief China economist, Ting Lu.
“We believe this larger-than-expected RRR cut is yet another sign that the People’s Bank of China and senior policymakers are increasingly concerned about the current economic downturn, which we have been flagging since mid-October last year. and the latest stock market performance,” he said in a note Thursday.
“The most interesting thing is that the policy decision was revealed in a less usual way, as the governor of the People’s Bank of China made the announcement personally during a question and answer session at the press conference,” Lu said.
Pan told reporters on Wednesday that the central bank and the National Financial Regulation Administration would soon release measures to encourage banks to lend to qualified developers. He The document was published later that day.
“It is a significant step by regulators to improve credit support for developers,” said UBS’s Wang. “For developer financing to improve fundamentally and sustainably, property sales must stop falling and start recovering, which could require further policy efforts to stabilize the property market.”
Real estate problems are just one of several factors that have weighed on Chinese investor confidence. The huge real estate industry has slowed growth and, along with a drop in exports and lackluster consumption, prevented the economy from recovering from the pandemic as quickly as expected.
Mainland China and Hong Kong stocks have steadily fallen to multi-year lows.
Stocks rose this week after a series of government announcements and media reports indicating upcoming state support for growth and capital markets.
Such efforts to stabilize the stock market help establish a floor to prevent the market from capitulating and falling further, Winnie Wu, chief China equity strategist at Bank of America, said on Thursday’s “Street Signs Asia” program. CNBC.
But he noted that a fundamental change in the economy is needed for investors to return to Chinese stocks, which will take time.
The world’s second largest economy grew by 5.2% in 2023, according to official figures published last week. This is a marked slowdown from the double-digit growth of past decades.
Chinese Premier Li Qiang on Monday called for much stronger measures to boost market stability and confidence, according to an official statement.
On Tuesday, Bloomberg News, citing people familiar with the matter, said Chinese authorities are looking to use funds from state-owned companies to stabilize the market, in a package of around 2 trillion yuan ($278 billion).
People’s Bank of China Governor Pan did not mention such a fund on Wednesday, although he took the lead in talking about capital markets, Citi’s Philip Yin and a team noted in a report. They said the 2 trillion yuan in capital would have to be deployed over weeks or months given current regulations, and would only amount to a fraction of current trading volume.
HAIAN, CHINA – JANUARY 24, 2024 – A staff member of the personal finance area of a bank counts and arranges the RMB deposited by customers into the daily account in Haian city, Jiangsu province, China, January 24 2024. (Photo credit should read CFOTO/Future Publishing via Getty Images)
Future publications | Future publications | fake images
“Most importantly, it does not appear to be enough to create a real impact on the economy’s underlying challenges,” the Citi analysts said.
For many consumers and businesses in China, uncertainty about the future remains high in the wake of the Chinese government’s recent crackdown on internet technology companies, the gaming sector, after-school education companies and real estate developers.
Tensions between the United States and China, centered on technological competition, have also affected confidence.
Since last summer, Chinese authorities have been at pains to talk about support for the non-state private sector.
“Ultimately, what is going to get fundamentals back on track is a significant improvement in confidence and sentiment, which is why recent measures have been designed to give a boost to confidence,” said David Chao, strategist global market leader for Asia Pacific (ex-Japan) from Invesco.
“The path to economic normalization is in the pockets of Chinese households and businesses and less in China’s stimulus toolkit,” he told CNBC.
But in general the markets have been waiting for more measures. Chinese authorities already announced in October the issuance of 1 trillion yuan in government bonds, along with an unusual increase in the deficit.
“To address macroeconomic challenges, an even greater opening of the monetary treasury is still required, and possibly with broader fiscal policy and an easing of deleveraging policy,” Citi analysts said.
Governor Pan’s comments on the narrowing gap between U.S. and Chinese monetary policies are “clues to further monetary accommodation going forward, especially with the Federal Reserve expected to ease later this year,” according to the report. .
China will hold its annual parliamentary meeting in March, where it could unveil a wider fiscal deficit and other policies for next year.
The Economist Intelligence Unit said Thursday in its China 2024 outlook that China’s leaders could aim for 5% growth next year, helped by greater fiscal support.
The report noted that Chinese leaders called for a new round of tax reform during their annual Central Economic Work Conference in December. Those details could be published at the third plenary session of the Chinese Communist Party’s central committee, which “will likely take place in early 2024,” the EIU added.
—CNBC Clement Tan contributed to this report.