Economists sceptical about China's rate cuts, new stimulus measures

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Economists sceptical about China's rate cuts, new stimulus measures

时间：2024-09-30 17:36 来源：未知作者：admin 阅读：次

In brief:

China has announced new stimulus measures to revive a flagging property sector and low domestic demand.

It will make it easier for people to invest in real estate, reducing some home deposits and cutting interest rates.

What's next?

Analysts say more fiscal stimulus packages will be needed to complement these monetary measures.

China has announced a raft of measures aimed at countering a prolonged downturn in its property market that is heavily weighing on the world's second largest economy.

On Tuesday, People's Bank of China governor Pan Gongsheng said the central bank would reduce the amount of reserves banks are required to keep, freeing up more money for lending.

He also announced the reduction of interest rates on loans to commercial banks and promised other moves to revive the slowing economy.

The construction sector plays a crucial role in China's economy.

Chinese authorities also want to make property investment easier, with down-payment requirements for second home buyers reduced from 25 per cent to 15 per cent.

Interest rates for mortgages will be cut by about 0.5 per cent, helping 50 million households and 150 million people, Mr Pan said.

Why are the measures needed?

Disruptions and job losses during the COVID-19 pandemic, coupled with falling prices for homes, have left many Chinese citizens unwilling or unable to spend, sapping the economy of other engines to drive business activity.

Official figures for August put urban unemployment at 5.3 per cent, up 0.1 per cent on the previous month.

Youth unemployment has risen to almost 19 per cent, a figure that some analysts claim is an underestimate.

These new monetary measures are therefore intended to support the faltering economy, stabilise the housing sector and restore market confidence.

What's been the reaction?

News of the initiatives lifted share prices, especially for real estate developers.

Hong Kong's Hang Seng index jumped 4.1 per cent, while the Shanghai Composite index was up 4.2 per cent.

Some analysts said the latest, coordinated approach to supporting the property sector might be more effective than earlier, piecemeal efforts that so far had brought only scant relief.

The headquarters of the People's Bank of China, the central bank, in Beijing.

It's "a step in the right direction," according to Julian Evans-Pritchard, lead China analyst at Capital Economics.

He noted that it represented the most significant central bank stimulus package since the early days of the pandemic.

"But it will probably be insufficient to drive a turnaround in growth unless followed up with greater fiscal support," the Singapore-based economist said.

Some analysts were even more sceptical.

Monash University's associate professor of economics He-Ling Shi said it was "too little, too late".

"The seven measures announced, even if you put them all together, might not be strong enough to help the economy recover from the current economic trouble.

"If China had implemented this stimulus package 12 months ago, it might have had a significant impact, but now it's too late."

Unlike Australia or the United States, where inflation has been the main recent economic problem, China has been contending with slowing growth and downward pressure on prices due to slackening demand.

Dr Shi said it was "very likely" that China would fail to meet its yearly GDP growth target of roughly 5 per cent.

Chinese consumer confidence remains low and — in his view — the government had clearly failed to provide enough support to stimulate domestic demand.

"Xi Jinping has actually made it clear that what he has tried to do is provide support on the production side, not the consumption side, because according to his philosophy, consumption is just a waste of resources," he added.

Some 70 per cent of China's household savings are parked in real estate.

"Economists in China, as well as economists outside of China like me, have been calling on the Chinese government to support consumption for over one and a half years.

"But it looks like the Chinese government actually is not very interested in stimulating consumption."

The high level of government debt at local and provincial level in China further complicated the issue, according to Dr Shi, meaning there was limited capacity for fiscal stimulus in the near future.

Governor Pan Gongsheng said the central bank would reduce the amount of reserves banks are required to keep.

Property remains a key area of concern

China's housing market has floundered in recent years, following a crackdown on excessive borrowing by developers, which led many to default on their debts and fail to deliver new apartments.

Authorities also remain wary of creating a property market bubble through big government spending packages.

Dr Shi said the reduction of the second property down-payment "could" have significant short-term effects to revitalise the market.

"The Chinese government has repeated the message many, many times that when the people buy a house, it's for their own use, not for investment," he said.

"But it looks like that the government has changed its mind a little bit."

The central government was even encouraging local governments to invest in the real estate market because, Dr Shi said, property is "the number one financial time-bomb in China".

Some 70 per cent of China's household savings are parked in real estate, according to Reuters.

But, the economist questioned, "If housing prices are going down, what's the reason for investing in the real estate market?"

Except for Beijing and Shanghai, he believed China's urban property market would continue to trend downward, which could limit the policy's effectiveness in the long term.

Stock market reform labelled as 'dangerous'

Regulators are also planning new policies to stabilise the share market, Chinese officials said.

Stock prices in China peaked before the global financial crisis in 2008 and have mostly flatlined since then.

"This year, the Chinese stock market is one of the worst performers in the world," Dr Shi said.

He said authorities want to see the Shanghai Composite Index back above 3,000 points, which it hasn't achieved since June 2024.

It was "very, very dangerous" for governments to engage in the stock market because it should be left to a free market, Dr Shi said.

But he explained: "Chinese companies regard the stock market as part of 'face', and they want to 'save face'."

Long-term outlook remains unclear

Dr Shi said China would continue to face economic issues, particularly an anaemic private sector, as long as companies feel unsettled by the Chinese business environment.

"China's government should make people feel confident on the future of the economy by making state policy stable rather than changing policies from today to tomorrow."

He said in recent years "lots of the big players" in the private sector have been "facing persecution" from the Chinese government, naming Alibaba Group as one specific example.

"Big private firms feel that they don't have a future, so they are now closing their factories, moving their money out of China and going to Singapore and other countries."

ABC/wires

By：https://www.abc.net.au/news/2024-09-25/china-stimulus-package-rate-cuts-avoid-recession/104395714

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