Chinese Bank Cuts Rates in a Series of New Measures

Facts

• On Friday, China announced a series of economic measures as it looks to combat a struggling property market and support a weakening yuan. China’s central bank cut the amount of foreign exchange reserve funds institutions must hold while large banks cut interest rates.¹
• The People’s Bank of China (PBOC) announced that the reserve requirement ratio (RRR) for foreign exchange deposits will be cut from 6% to 4% on Sept. 15, in a widely anticipated move that will allow banks to lend more money and cut down on bets against the yuan’s value.²
• Meanwhile, the PBOC and the National Administration of Financial Regulation (NAFR) slashed the minimum down payment requirements to 20% for first-time homebuyers and 30% for second-time buyers. The down payments were previously at least 30% to 40%.³
• China’s five largest banks also cut interest rates on a range of deposits, as banks including Industrial and Commercial Bank of China, China Construction Bank Corp, and Agricultural Bank of China cut their deposit rates between 0.05%-0.25% while lowering mortgage rates.⁴
• This comes as China’s largest private developer, Country Garden, faces a debt crisis in the struggling property sector, which accounts for 25% of China’s economy. On Thursday, Country Garden extended a deadline for creditors to vote on whether to postpone payments for an onshore 3.9B yuan ($537M) private bond.⁵
• China is also cutting rates on new home loans and existing first-home mortgages to help revitalize the housing market. Markets responded positively to the moves as Chinese stock indexes saw modest rises on Friday.¹

Sources: ¹Reuters, ²South China Morning Post, ³CNN, ⁴CNBC and ⁵US News & World Report.

Narratives

• Pro-China narrative, as provided by Global Times. Contrary to the prevailing anti-China narrative emanating from the West, China’s economy is far stronger than most think, and Beijing’s forceful actions are helping China along in its recovery from the pandemic. The issues facing China’s property sector have been greatly exaggerated, and policy tweaks will allow for robust home ownership and an uptick in consumer sentiment. China’s economy is on the right path, and its best days still lay ahead.
• Anti-China narrative, as provided by The Conversation. China is in the midst of a full-blown property crisis that will have a profound impact on its entire economy. China’s property sector played a big role in the country’s ascent over the past few decades, but it has slowly been declining as individual homebuyers and large developers alike struggle to make payments. China’s systemic issues have created this crisis, and it is unlikely that a few policy tweaks will make this problem go away.