February 12, 2025
China targets asset crunch with new measures to boost economy

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Hong Kong CNN –

China has launched a new batch of stimulus measures to boost the country’s ailing property market and support the weakening yuan, in its latest attempt to restore confidence in the world’s second-largest economy.

Cumulatively, the policy announcements – as well as signs of a pick-up in China’s manufacturing sector in August – lifted Asian shares modestly on Friday.

According to a joint statement issued by the People’s Bank of China (PBOC) and the National Administration of Financial Regulation (NAFR) on Thursday, the minimum down payment for the mortgage is up to 20% for first-time buyers and 30% for second-time buyers. will be reduced. nationwide.

Earlier, home buyers in cities such as Beijing and Shanghai had to make at least 30% to 40% down payment.

In addition, interest rates on new mortgages are also being cut by about 40 percentage points after the central bank set a lower minimum premium over its benchmark loan prime rate.

In a separate statement, the regulator said existing mortgage rates for first home purchases can be renegotiated from September 25. Regulators have encouraged banks to offer lower rates.

“A fall in existing home loan interest rates can save interest outgo for borrowers, which is conducive to boosting consumption and investment,” the regulators said.

Following the announcement, a dozen of the country’s largest commercial banks – including ICBC, China Construction Bank and Agricultural Bank of China – cut their deposit rates by 10 to 25 basis points on Friday.

Nomura analysts said the coordinated move was intended to “pave the way” for banks to cut their mortgage rates based on new requirements from regulators.

The new measures could help 40 million home buyers and impact 25 trillion yuan ($3.5 trillion) of mortgages, or about two-thirds of the country’s housing loans, state-owned YICAI said, citing people close to regulators. Reported on Thursday.

“This is an important part of the additional policy easing that we are expecting,” said John Lam, head of China and Hong Kong assets at UBS Investment Bank Research. “We consider this policy easing to be more positive and different than the previous ones, as such a nationwide policy helps to strengthen home buyers’ confidence on the property price outlook.”

Analysts at Capital Economics agreed, writing Friday: “Stimulus efforts are finally gaining momentum.”

He said the new measures will bring down the upfront cost of home ownership in many big cities. “If it can also boost broader confidence, it could be enough to stop a collapse in the housing market.”

Authorities have also decided to tackle the decline in the value of the yuan, which has fallen sharply in recent months as investor concerns about the health of the Chinese economy mount.

The PBOC said on Friday it would cut for the first time this year the amount of foreign currency that banks must hold in reserve from 6% of their foreign currency deposits to 4%.

The yuan has declined recently as foreign investors pulled out of Chinese assets amid concerns over China’s growth and a deepening real estate crisis. The offshore yuan has depreciated 6% against the US dollar since April.

Friday’s move by the PBOC could ease pressure on the yuan, said Becky Liu, head of China macro strategy at Standard Chartered.

He said the amount may be insignificant, but the move was symbolic as it “confirmed the PBOC’s decisive stance” to prevent yuan weakness in the near future.

And the government is moving to boost domestic consumption, which accounts for about 37% of China’s GDP.

Effective this year, it will double tax exemptions on the cost of child care and education, according to a statement from the State Council on Thursday.

There was also a significant increase in tax relief for caring for elderly parents.

Data released by Caixin and S&P Global on Friday showed that the Caixin Manufacturing Purchasing Managers’ Index surprisingly returned to expansion in August.

The index rose to 51 from 49.2 in July. This is the highest level since February, indicating a significant recovery in factory activity.

The reading was more encouraging than the official government survey released on Thursday, which showed manufacturing was still stuck in contraction in August despite signs of improvement.

“The Chinese economy is showing more signs of stabilization than of further decline,” Larry Hu, chief economist for Greater China at Macquarie Group, wrote in a Thursday research note.

He said, policy actions in the last month have helped stabilize the economy.

“The main thing is that China’s economy is not out of crisis yet, but it is not in crisis either,” he said, adding that policymakers need to act more decisively to get the housing market out of its continuing decline. need to work from

Source: www.cnn.com

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