China Takes Bold Measures to Bolster Economy Amidst Housing Woes and Demand Challenges pledges 800 billion yuan ($112 billion) loan

In a strategic move to fortify its economy grappling with a housing slump and subdued demand, China has announced its commitment to support the nation through the largest injection of medium-term policy loans to date, as reported by Bloomberg.

The People’s Bank of China (PBOC) has taken decisive action, providing commercial lenders with a substantial net amount of 800 billion yuan ($112 billion) in one-year loans, all while maintaining the existing interest rate. This injection has exceeded analysts’ expectations, doubling the anticipated amount and surpassing the previous month’s financial infusion.

The Chinese economy has faced various challenges throughout the year, experiencing a slower-than-expected recovery from stringent Covid Zero policies and a deepening property crisis. Despite a mixed bag of economic data, including industrial production surpassing expectations while retail sales fell short in November, the nation remains cautious about its growth recovery.

This significant and sustained support from the PBOC underscores Beijing’s unwavering commitment to maintaining ample liquidity. This move comes on the heels of China’s rare decision in October to raise the fiscal deficit ratio to a three-decade high and permit the sale of an additional 1 trillion yuan in sovereign bonds within the year. Recent episodes of sudden cash tightness, attributed to seasonal factors and debt issuance, have left investors unsettled in recent months.

According to Michelle Lam, Greater China economist at Societe Generale SA, “The large amount of MLF injection seems to suggest less chance of a reserve-requirement ratio cut in the near term, and it seems that the PBOC is probably still prioritizing foreign-exchange stability and refrains from pursuing aggressive stimulus. However, with domestic demand still on shaky ground, we think there will still be more RRR and interest rate cuts next year.”

PBOC Injects 1.45 Trillion Yuan to Boost Economy as China Relaxes Homebuying Restrictions

In a significant move to stimulate economic growth, the People’s Bank of China (PBOC) injected a substantial 1.45 trillion yuan through its medium-term lending facility on Friday, surpassing the 650 billion yuan due in December. Concurrently, Chinese authorities have relaxed homebuying restrictions in key cities like Beijing and Shanghai, intensifying efforts to counter an unprecedented housing downturn. Beijing, mirroring Shanghai’s strategy, reduced the down-payment ratio for second homes to 40% or 50%, depending on the property’s location.

The economic landscape has seen traders engaged in prolonged debates over the PBOC’s policy approach. Some advocate for targeted tools such as Medium-Term Lending Facility (MLF) injections, while others propose a reduction in the reserve requirement to release cheaper and longer-term funding.

It is certain that fiscal stimulus will play a more significant role in the upcoming year. In a recent meeting, China’s policymakers called for “appropriately stepped up” fiscal measures, coupled with “prudent” monetary policy, aligning with a pro-growth stance from a recent Politburo meeting.

Also Read: Silvana Mojica Opens Up About Emotional Breakup with Dave Portnoy and Moving Forward

The market responded positively to the liquidity injections and additional support measures, witnessing a surge in China stocks. Hong Kong led gains in Asia, with the Hang Seng China Enterprises Index recording an increase of more than 3%, and the yuan recovering losses in onshore trading.

Serena Zhou, economist at Mizuho Securities, noted, “Lack of confidence is still the key factor hindering growth, but a lower rate will help the economy. I still look for 20-basis-point cuts to interest rates and 50-basis-point cuts to the RRR next year – the room for further monetary easing is relatively limited.”

(With Inputs from Bloomberg)