Pan Gongsheng, Governor of the People's Bank of China, speaks during a press conference at the China's State Council Information office in Beijing on Sept. 24, 2024.ADEK BERRY/AFP/Getty Images
China has unveiled a host of policies designed to stimulate the world’s second-largest economy, as Beijing grapples with a prolonged property crisis, lacklustre domestic consumption and trade disputes with the West.
Speaking to reporters Tuesday, central bank governor Pan Gongsheng announced measures to free up as much as a trillion yuan ($192-billion) in reserves for banks to lend, along with cuts to short-term interest rates and for existing mortgages. The bank has also lowered the minimum down payment for new property to 15 per cent.
The mortgage rate cut alone, Mr. Pan predicted, could benefit as many as 150 million people, reducing household expenses by about 150 billion yuan ($28.7-billion) a year, “which will efficiently boost consumption and investment.”
Last week the U.S. Federal Reserve delivered its own rate cut, which may have given the People’s Bank of China more room to ease monetary conditions without putting too much pressure on the yuan.
While stocks rallied across Asia on the news – which the Hong Kong-based South China Morning Post described as a “policy bazooka” – most analysts were underwhelmed.
“This is the most significant PBOC stimulus package since the early days of the pandemic,” said Capital Economics analyst Julian Evans-Pritchard. “But on its own, it may not be enough.”
China has set an annual GDP growth target of “around 5 per cent” for this year but appears likely to fall short. The country has struggled to rebalance the economy away from a dependence on property and infrastructure – largely funded by state borrowing – amid poor domestic demand and growing international headwinds.
“The property crisis is probably the biggest drag on China’s growth right now,” said Nick Marro, principal economist for Asia at the Economist Intelligence Unit. “We’re not expecting the property sector crisis to really bottom out until 2026 at the earliest – keeping a downward drag on growth over the foreseeable future.”
Property once accounted for as much as 30 per cent of China’s GDP and remains the main store of household wealth, far more so than in other countries, so any downturn “has a much broader ripple effect on the economy than casual observers of China would expect,” Mr. Marro added.
At a key Communist Party meeting earlier this year, officials promised to “further deepen reform comprehensively” but offered few details about what this would entail. Actions since then have been measured and focused on promoting high-tech development in sectors such as electric vehicles and semiconductors, even as both have been hit with tariffs in Western countries.
Even moves that seem more ambitious, such as this month’s decision to raise retirement ages for the first time since the 1950s, have been in the cards for years and will not have much of an immediate effect, Mr. Marro said.
“This policy didn’t come out of left field – it’s something that people have been debating for a very, very long time, and it took a long time for it to materialize,” he said. “And even when it did, the relative reforms are somewhat unambitious. They’re not going to revolutionize how the employment landscape looks.”
Changes to retirement ages will be carried out over 15 years, rising to 63 for men and 55 or 58 for women, depending on their jobs. The current retirement age is 60 for men, 50 for women in blue-collar jobs and 55 for women doing white-collar work.
Despite its gradual rollout, the announcement has been broadly unpopular, contributing further to widespread negative sentiment about the economy in China. Analysts have warned it could also have knock-on effects for youth employment, already very low, and child care, with many families dependent on older relatives who may now have to work.
Chinese President Xi Jinping has shown little sympathy for those struggling with the current economic malaise after several decades of growth. Last year he told young people unable to find work that they needed to “eat bitter” like their parents and grandparents did when China was far poorer.
Beijing has also been loath to enact any kind of direct spending stimulus, with Mr. Xi repeatedly inveighing against handing out cash or promoting “welfarism,” even as the country desperately needs to boost domestic consumption.
Writing last month, Logan Wright, an expert on China at Rhodium Group, a New York-based research firm, said “there are no simple solutions for Beijing’s plight.”
“Growth from investment has already collapsed. Growth from consumption is already slowing. Growth from government spending is exhausted by local debt burdens. Growth from net exports is facing political resistance. The exchange rate is under pressure to depreciate,” Mr. Wright said. “For China’s economic trajectory to reverse course and grow again relative to the rest of the world, several of those basic premises must change.”
With reports from Reuters and the Associated Press