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26 Sep 2024

Econ Digest

China’s recent economic stimulus package has provided a short-term boost to the stock market, however, its long-term effects on the overall Chinese economy remain uncertain.

คะแนนเฉลี่ย

        The Governor of China’s central bank announced new economic stimulus measures for the country, divided into three main initiatives as follows:
1.    Stock market support measures amounting to RMB800 billion through two new programs:
•    Swap Facility (RMB500 billion): The People’s Bank of China will provide special liquidity to securities firms, funds, and insurance companies to purchase stocks, using assets as collateral.
•    Special Re-lending Program (RMB300 billion): Liquidity will be provided to listed companies and major shareholders to facilitate stock buybacks.

2.    The People’s Bank of China has implemented a larger-than-expected interest rate cut (Figure 1) to encourage household and corporate spending by reducing borrowing costs. Additionally, the central bank has lowered the reserve requirement ratio (RRR) for commercial banks (Figure 2), injecting approximately RMB1 trillion into the system and signaling further reductions for the remainder of 2024.
3.    Three key measures to support the real estate sector include:
1.    Lowering the minimum down payment: Reducing the required down payment to purchase a second home from 25% to 15%.
2.    Interest rate cuts on existing mortgages: Lowering the interest rates on existing mortgages by an average of 0.5%, providing relief to 50 million households and reducing their annual debt burden by RMB150 billion (0.1% of GDP).
3.    Increasing re-lending quotas: Increasing the re-lending quota for completed homes to be renovated into rental properties from 60% to 100%.

        On September 24, 2024, both the capital and money markets responded positively to China’s new economic stimulus measures. The CSI300 index surged by 4.3%, reaching 3,351.91 (Figure 3) while the Chinese RMB appreciated by 0.3% to 7.0318 yuan per US dollar (Figure 4).
•    KResearch views China’s new economic stimulus measures as a reflection of policymakers’ concerns over the slowing Chinese economy while the overall economic impact remains uncertain.
•    A major issue for China’s economy is the low level of confidence. However, the latest measures lack direct support for boosting consumption. It is seen that substantial fiscal measures may need to be implemented as well.
•    The scale of the stimulus package is relatively small compared to the economic challenges China is facing. In 2008, China implemented a stimulus package worth RMB4 trillion, equivalent to 15% of its GDP. In contrast, the current monetary measures amount to only 3.3% of GDP, excluding the impact of policy rate cuts and real estate measures.
•    However, while the measures to support the stock market will help boost investor sentiment in the short-term, the long-term outlook remains contingent upon underlying economic fundamentals.

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Econ Digest

China