China is stepping up its efforts to revive the economy’s recovery and improve the business environment as concerns about the growth outlook continue to mount.
In recent weeks, the central bank made its biggest interest rate cut in three years, regulators reduced the stamp duty on stocks transactions for the first time since 2008, and banks are poised to lower interest rates on existing mortgages.
The moves follow a flurry of statements from the government and Communist Party since July pledging to help private businesses access funding, coaxing them to invest more and encouraging additional spending on consumer goods and cars.
It’s unclear, though, whether the measures will help boost business and consumer sentiment, which remains subdued after years of Covid restrictions, a property market slump, falling global demand and rising unemployment.
Despite the latest easing measures, Beijing isn’t unleashing the kind of monetary and fiscal stimulus implemented during past downturns. President Xi Jinping’s government is reluctant to give the kind of cash handouts to consumers that fueled post-pandemic recoveries in the US and elsewhere. And debt-laden local governments in China don’t have the fiscal space for a major boost to spending.
Here’s a snapshot of the recent measures announced:
The Politburo signaled an easing of property policies at its July meeting, fueling speculation of stronger support measures. Beijing appears to be following through now, with the largest banks preparing to cut interest rates on most 38.6 trillion yuan ($5.3 trillion) of existing mortgages. The last time a similar move was made was during early 2009.
On Aug. 25, authorities proposed that local governments could scrap a rule that disqualifies people who’ve ever had a mortgage — even if fully repaid — from being considered a first-time homebuyer in major cities. The government left it up to local officials on whether to adopt the policy.
At a State Council meeting chaired by Premier Li Qiang on July 31, China’s cabinet called on cities to roll out measures that are “conducive to the healthy development” of their property markets according to their own needs. The officials also urged efforts to be beefed up on the research and construction of a new industry development model.
The government is planning to boost the renovation of so-called urban villages. It will seek more private capital in the projects to expand domestic demand and push forward development of cities, the State Council said on July 21.
Financial regulators on July 10 extended loan relief for developers to ensure the delivery of homes under construction. The PBOC has also called on banks to lower the rates on existing mortgages.
In a surprise move on Aug. 15, the People’s Bank of China cut its main policy interest rate by 15 basis points, the most since 2020, and the second reduction this year. The move came shortly before the release of July data that showed weak consumer spending growth, sliding investment and rising unemployment.
Chinese banks, however, didn’t follow through by cutting their benchmark five-year lending rate, which guides mortgage rates. With banks’ profit margins under pressure, the major state-owned lenders are considering lowering their deposit rates for at least the third time in a year, according to people familiar with the matter. That would reduce their costs, allowing them to drop lending rates over time.
China lowered the stamp duty on stock trades by half on Aug. 28 — the first cut to the duty since 2008, a move intended to bolster the equities market amid an intensifying selloff.
The country’s securities watchdog also pledged to slow the pace of initial public offerings and restrict the frequency and size of refinancing for some poorly-performing companies.
Earlier in August, officials asked some investment funds to avoid becoming net sellers of equities and encouraged companies listed on Shanghai’s science and technology board to buy back their shares, among other measures.
To curb the currency’s decline, the central bank has escalated its defense of the yuan in recent weeks by setting stronger daily fixings and pushing up funding costs in the offshore market.
The moves came after the Communist Party’s Politburo, its top decision-making body, at a key July meeting vowed to “invigorate the capital markets” and keep the yuan’s exchange rate “basically stable at an equilibrium level.”
Thirteen government departments outlined a plan on July 18 to boost household spending on everything from electric appliances to furniture. Local authorities are encouraged to help residents refurbish their homes, and people should get better access to credit to buy household products, according to the measures announced.
On July 28, three government agencies outlined a plan to increase manufacturing of small consumer goods — or the so-called light industry sector, which makes up more than a quarter of China’s exports. Steps will be taken to increase sales of green and smart home goods in rural areas, and expand the use of battery products in electric cars, power stage and telecommunications. An exchange dedicated to helping small firms get access to funds will also be expanded.
The National Development and Reform Commission, China’s top economic planning agency, released a comprehensive document on July 31 repeating many of the pledges so far. The document focuses on removing government restrictions on consumption, such as car purchase limits, improving infrastructure and holding promotional events like food festivals.
The NDRC released a 10-step plan on July 21 to increase car purchases, particularly for new-energy vehicles, including lower costs for electric-vehicle charging and extending tax breaks. In June, the Ministry of Commerce launched a six-month campaign to boost car purchases and drive electric vehicle adoption in rural areas.
The NDRC said in a notice on Aug. 10 it will beef up a mechanism to record and crack down on malpractices by the government while dealing with private businesses, such as delaying payment and violation of contracts regarding government procurement, project bidding, public-private capital cooperation, etc. The move is intended at improving the development environment for private companies, it said in a statement.
On Aug. 1, the NDRC pledged to boost credit to private companies and extend other funding measures to small firms. That includes expanding a bond credit enhancement tool that is backed by financial institutions to all qualified private companies, and a promise to raise the amount of credit loans for the sector.
The NDRC released a plan on July 24 encouraging private firms to invest in key industries like transportation, water conservation, clean energy, new infrastructure, advanced manufacturing and modern agricultural facilities. Local governments have submitted more than 2,900 projects, worth a total of 3.2 trillion yuan ($445 billion), that businesses can invest in. The NDRC will also seek to finance the projects through bank loans and real estate investment trust products.
China’s internet regulator met with executives from dozens of foreign firms in August, including Walmart Inc. and PayPal Inc., to discuss ways to navigate Beijing’s new data-security rules, an effort to reassure multinationals worried about their ability to operate in the world’s No. 2 economy under the latest regulations.
The Communist Party and government issued a rare joint pledge on July 19 to improve conditions for private businesses after wrapping up an almost two-year regulatory crackdown of the technology sector. Beijing outlined 31 measures that included promises to treat private companies the same as state-owned enterprises, consult more with entrepreneurs on drafting policies, and cut market entry barriers for firms.
On July 13, the top internet regulator released 24 guidelines for ChatGPT-style services, loosening some restrictions it proposed several months previously. On July 27, the central bank asked lenders and financial markets to provide more support for innovation and tech-related acquisitions, and to boost investment in startups.
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