Beijing tries to revive the country's economy. The China announced major economic measures to ease pressure on households and revive the struggling economy, with a particular focus on the real estate sector. Starting October 25, the Chinese banks to cut interest rates on existing mortgages, in response to the request of the Central Bank (PBOC), to stimulate consumption and improve confidence in the real estate market, severely hit by a prolonged crisis.
The Minister of Finance Lan Fo'an also communicated theissuance of special bonds Treasury bonds worth 2.300 trillion yuan (about 325 billion U.S. dollars) over the next three months. These bonds are part of a strategic plan to address economic challenges and strengthen state-owned commercial banks, thereby improving their lending capacity and risk resilience.
China set to cut mortgage rates by 30 basis points
The decision of reduce mortgage rates existing in China responds to households' financial difficulties, exacerbated by the stagnation of the real estate market and the rising cost of living. According to an announcement by state-run CCTV, interest rates for all mortgages except second mortgages in major cities such as Beijing, Shanghai and Shenzhen will be lowered by at least 30 basis points compared to the central bank's (PBOC) primary lending rate.
The measure has been welcomed by many households and investors, although some urban areas will not benefit from the adjustment. The four major state-owned banks — Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank — will apply these changes uniformly and automatically, without requiring customers to apply, to ease the pressure on homeowners and stimulate consumption.
Fiscal stimulus to boost the economy
In addition to the mortgage rate cut, Finance Minister Lan Fo'an announced another measure to support the economy: the issuance of special treasury bonds worth 2.300 trillion yuan (just over 325 billion dollars). The stated aim is to relaunch the economy “over the next three months through a wide range of initiatives“, including strengthening the capital of large state-owned commercial banks and improving their lending capabilities.
Lan stressed the importance of “supporting large state-owned commercial banks in rebuilding tier-one capital, improving risk resilience, and better serving the development of the real economy.” He also reassured markets that “local debt risks are under control,” a sensitive issue for a country that has seen local government debt grow exponentially in recent years.
New tools to tackle the housing crisis
This move is seen as a key step to address the real estate crisis, the worst the country has ever faced. One of the proposals under consideration is to buy unsold homes and turn them into subsidized housing, a solution that could relieve pressure on the housing market and, at the same time, guarantee a social response to the lack of affordable housing for the most vulnerable sections of the population.
China's real estate market, a pillar of the country's economy, has suffered particularly badly from the restrictive measures imposed in recent years to curb excessive debt.
Lan also said that China still has ample room to issue new debt, which is crucial to addressing economic challenges. Many analysts and investors expect China deliver further fiscal stimulus, estimating that it could reach up to 2.000 trillion yuan (over 280 billion dollars) to boost the confidence of households and businesses. After the measures already taken, such as cutting rates and easing regulations on home purchases, the need for further action has emerged to ensure economic recovery.
One of the fundamental problems that Beijing is trying to address is the country's dependence on exports, in the context of rising global trade tensionsWeak domestic consumption and fragile business and household confidence have cast doubt on whether China can meet its 5 GDP growth target of “around 2024%,” a target that now looks increasingly uncertain.
