China’s central bank has announced its most aggressive economic stimulus measures since the COVID-19 pandemic began. The People’s Bank of China (PBOC) is taking steps to counter deflationary pressures and support the struggling property market. The key measures include cuts to interest rates and the reserve requirement ratio (RRR).
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The PBOC will also provide additional support specifically targeted at the property sector. These steps are intended to boost liquidity, encourage borrowing, and stabilize the housing market. China has been facing a slowing economy.
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Analysts suggest that more fiscal stimulus may be necessary to restore confidence among businesses and consumers. The aggressive stance by the PBOC highlights the urgency of addressing the economic challenges confronting the world’s second-largest economy. The PBOC’s headquarters in Beijing has been at the center of these significant policy announcements.
What do China's latest stimulus measures tell us about leadership's thinking on economic policy?
Our expert @dpcchiu says there is a marginal shift in thinking on demand-side support within the leadership, but it’s too early to see an inflection point.https://t.co/OcVlU8LSrk
— Eurasia Group (@EurasiaGroup) September 30, 2024
The central bank announced that it will cut the reserve requirement ratio by 50 basis points. This will free up about 1 trillion yuan ($142 billion) for new lending. The PBOC also hinted at the possibility of further reducing the RRR by an incremental 0.25-0.50 percentage points.
China’s economic stimulus measures unveiled
Additionally, the central bank said it would lower the seven-day repo rate by 0.2 points and the interest rate on a medium-term lending facility by about 30 basis points. Loan prime rates will also be reduced by 20-25 basis points.
The Chinese Shanghai Composite Index settled 8.06% higher at 3,336.50 after the stimulus announcement. This was despite the Caixin manufacturing and services sector purchasing managers’ indices showing disappointing results. The index has gained nearly 22% since Sept.
20 and is up by about 12% for the year. CNBC Mad Money host Jim Cramer weighed in on the stimulus measures. He recommended Apple Inc., Starbucks Corp., and Alibaba Group Holding Limited as stocks that could potentially benefit.
For Apple, China is a key market both from the perspective of supply and demand. The country is a major manufacturing hub for the company and a crucial market for its consumer electronics products. Coffee chain retailer Starbucks also has a significant presence in China, although weakening economic fundamentals have impacted sales in recent quarters.
Alibaba’s fortunes are closely tied to the Chinese economy as it generates the bulk of its e-commerce sales from the country. A Chinese economic revival may bode well for Alibaba, commodity and energy stocks, and multinational corporations with a substantial presence in China.
