China unveils aggressive new stimulus package

by / ⠀News / September 26, 2024
China unveils aggressive new stimulus package

China has announced its most aggressive economic stimulus measures since the pandemic, aiming to revive growth and address a housing market downturn. The People’s Bank of China (PBOC) slashed short-term interest rates and rates on existing mortgages, lowered minimum down payments for housing purchases, and authorized state-controlled commercial banks to increase their lending capacities. During a rare news conference, PBOC Governor Pan Gongsheng stated that the bank is prepared to further relax lending constraints if necessary.

The central bank reduced its benchmark seven-day interest rate from 1.7 percent to 1.5 percent and instructed commercial banks to decrease the proportion of assets they are required to hold in reserve by half a percentage point. This change is expected to release an additional $140 billion for lending to households and companies. The PBOC also facilitated banks in providing loans to companies for share repurchases and to major shareholders to acquire larger stakes in companies, measures that are likely to support stock prices.

The stimulus measures have had an immediate impact on financial markets. The CSI 300, China’s benchmark stock index, surged 4.3%, its largest jump since July 2020. The country’s currency, the renminbi, dropped 0.6%, the most significant decline since early August.

china’s economic measures spark market reaction

Commodities also saw a significant boost, with copper futures skyrocketing over 4.5% to a decade-plus high. However, China’s track record with large stimulus efforts has been mixed.

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In 2008, the country’s massive infrastructure spending led to unsustainable debt. In 2015, a stock market crash wiped out gains despite similar interventions, and during the pandemic, the Chinese property sector collapsed after another stimulus effort fueled a bubble. Speculation has arisen about the possibility of additional fiscal stimulus, which could have global ripple effects.

If Beijing starts directing more government money into infrastructure, commodities would likely see another spike, impacting everything from US manufacturing to energy sectors and causing major shifts in supply chains and raw material pricing. For US investors, inflated commodity costs do not necessarily translate to consumer-level inflation, but more volatility in inflation could be on the horizon as China’s measures push commodity prices higher. US businesses may face higher input costs, unpredictable consumer demand, and planning headaches, especially for smaller firms.

These steps reflect China’s determination to invigorate its economy and stabilize key financial sectors in the face of ongoing economic challenges. As Bloomberg’s chief Asia economist Chang Shu put it, “Delivering all these measures at once is highly unusual,” highlighting the urgency felt in Beijing to head off deflationary risks and get growth on track for this year’s 5% national growth target.

About The Author

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders. MBA from Graduate School of Business. Former tech startup founder. Regular speaker at entrepreneurship conferences and events.

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