The governor of China’s central bank unveiled one of the nation’s boldest actions to boost its economy since the pandemic on 24th September 2024. As Kavan Choksi says, these initiatives included lowering the amount of cash commercial banks needed to hold in reserves, and reducing mortgage rates for existing homes. The former is expected to inject around 1 trillion yuan into the financial market by letting the banks lend out more. 800 billion yuan was also announced on top of this to strengthen the capital market of China. This included a new 500-billion-yuan monetary policy facility for assisting institutions to access funds to buy stocks with greater ease. The remaining 300 billion yuan is meant to be for re-lending facility that helps speed up sales of unsold housing.
Kavan Choksi provides a brief insight into the positive impact of government stimulus on China’s economy
Multiple major foreign investors in China have witnessed positive signs after China’s wave of economic stimulus. These included easier access to capital, a tentative uptick in consumer spending and an opening for deeper change. Chinese government stimulus, lowering interest rates and even the conclusion of the U.S. presidential election is likely to pave the way for a brisker economic recovery in China eventually. The benchmark CSI 300 index of China soared by a quarter from mid-September. This happened after the authorities announced interest rate cuts along with certain other measures in order to boost the economy.
The central government of China is highly committed to actualizing the stimulus that is needed for the Chinese economy to both hold up and do well. More concrete Chinese stimulus, in turn, can provide a boost to private sector spending and consumer sentiment. Higher sending would help create a virtuous cycle that even benefits the stock market. Many European companies in China essentially view the stimulus as a major step towards government spending that may further increase consumption. It may also have a role in the implementation of structural changes, which imply to more seismic shifts in the business environment of the country. As per Kavan Choksi, several offshore investment banks and other financial institutions have raised or maintained their 2024 economic growth projections owing to the stimulus.
Beijing has provided its stimulus in spurts since the end of September. This stimulus was largely in response to a property crisis in the market. The stimulus package of China slashed mortgage rates for homebuyers and even pledged to double credit to white list property projects. It also christened a swap facility to improve stock market liquidity. These stimulus measures are likely to encourage homeowners to increase their spending.
The National People’s Congress Standing Committee, a top legislative body in China, is scheduled to meet for five days at the start of November for the purpose of discussing a wide variety of issues. The market is expecting the approval of a fiscal stimulus plan at this meeting. Lawmakers may even approve adding between 1 trillion yuan (US$140 billion) and 2 trillion yuan to a central government special bond issuance quota according to Goldman Sachs. Many experts also believe that some stimulus might even go to low-income households and help encourage childbirth.
