China unveils fresh stimulus to boost high-quality economic development

China's central bank, top securities regulator and financial regulator on Tuesday announced at a press conference a raft of monetary stimulus, property market support and capital market strengthening measures to boost the country's high-quality economic development.

MONETARY STIMULUS

Pan Gongsheng, governor of the People's Bank of China, said China would cut the reserve requirement ratio (RRR) by 0.5 percentage points in the near future, providing about 1 trillion yuan (about 141.82 billion U.S. dollars) in long-term liquidity to the financial market.

Depending on the liquidity situation in the market, RRR may be further lowered by 0.25 to 0.5 percentage points within the year, Pan said.

He said that the central bank will reduce the interest rate of seven-day reverse repurchases from 1.7 percent to 1.5 percent.

The reduction was aimed at guiding the loan prime rate and deposit rate to move downward and maintaining stability in the net interest margin of commercial banks, said Pan.

Pan said the central bank would keep monetary policy accommodative, strengthen monetary policy regulation, make monetary policy regulation more precise, and create a sound monetary and financial environment for stable economic growth and high-quality development.

China targets economic growth of around 5 percent in 2024.

The country's economy maintained stable expansion in the first half of the year despite rising challenges from home and abroad.

Data from the National Bureau of Statistics (NBS) showed that China's gross domestic product (GDP) grew 5 percent year on year in the period to 61.68 trillion yuan. In the second quarter, China's GDP expanded 4.7 percent year on year.

Pan Gongsheng, governor of the People's Bank of China, Li Yunze, head of the National Financial Regulatory Administration, and Wu Qing, head of the China Securities Regulatory Commission, attend a press conference in Beijing, capital of China, Sept. 24, 2024. (Xinhua/Li Xin)

MORTGAGE RATE CUTS

Pan added that China will lower mortgage rates on existing home loans to a level similar to those of newly issued housing loans.

The average reduction in mortgage rates for existing home loans is expected to be around 0.5 percentage points, he said.

"The new policy, which is conducive to further reducing borrowers' mortgage interest expenses, is expected to benefit 50 million households, or a population of 150 million," said Pan.

This move is expected to reduce the total interest expenses for households by approximately 150 billion yuan per year on average, which will help boost consumption and investment, he added.

The minimum down payment ratio for both first and second homes will be unified, with the nationwide minimum down payment ratio for second homes to be reduced from 25 percent to 15 percent, Pan said.

This photo taken with a mobile phone shows people watching a sand table model of a real estate project in east China's Shanghai, May 28, 2024. (Xinhua/Zheng Juntian)

On May 17, China announced the establishment of a 300-billion-yuan re-lending facility that supports local state-owned enterprises to buy commercial homes for affordable housing.

Pan said the central bank will increase its funding proportion in the affordable housing re-lending policy from the original 60 percent to 100 percent.

"This adjustment will help accelerate the reduction of inventory in the commercial housing market," Pan said.

China's large and medium-sized cities saw month-on-month declines in both new and second-hand home prices in August, NBS data showed.

FINANCIAL MARKET SUPPORT

Moreover, the central bank will create new monetary policy tools to support the stable development of the stock market, said Pan.

The central bank will establish a swap program for securities, funds and insurance companies to obtain liquidity from the central bank through asset collateralization. The program will significantly enhance companies' ability to acquire funds and increase their stock holdings, Pan said.

The central bank will also create a special re-lending facility to guide banks to provide loans to listed companies and their major shareholders for buybacks and increasing shareholdings, he said.

This photo taken on Oct. 19, 2023 shows the People's Bank of China in Beijing, capital of China. (Xinhua/Peng Ziyang)

Experts consider the release of the new batch of policies a positive signal of strengthening policy coordination and efforts to achieve the annual economic growth target.

The central bank's policies, which exceed market expectations, will boost market confidence, stimulate the vitality of business entities, stabilize credit levels, and enhance the sustainability of financial support for the real economy, said Wen Bin, chief economist at China Minsheng Bank.

To better channel funds into the capital market, China will issue a guideline that seeks to improve the entry supporting system of various types of medium and long-term funds into the capital market, according to Wu Qing, head of the China Securities Regulatory Commission.

The commission will also release six measures to promote mergers and acquisitions, and work with various parties to facilitate the circulation of private equity and venture capital funds in the process of fundraising, investment, management and withdrawal, Wu said.

More efforts will be made to protect the legitimate rights and interests of small and medium-sized investors, and firm actions will be taken to crack down on illegal activities such as financial fraud and market manipulation, according to Wu.

Li Yunze, head of the National Financial Regulatory Administration, said China plans to increase the tier-1 capital of six major commercial banks.

The capital will be injected in an orderly manner, with coordinated advancement, phased implementation and tailored policies, said Li.

Tier-1 capital refers to the core capital held in a bank's reserves, including common stock and disclosed reserves.

China's major stock indices surged following the release of the policies and measures, with the Shanghai Composite Index and the Shenzhen Component Index both closing with an increase of more than 4 percent.  ■