China Cuts Interest Rates
and Mortgage Down Payments to Flag Sagging Growth
The
country’s central bank also freed commercial banks to lend more money in a
package of moves aimed at rekindling growth in a stagnant economy.
·
Commercial
banks that they would be allowed to reduce, by half a percentage point, how
much of their assets they held in reserve.
·
Mainland
China’s stock markets, among the worst performing in the world this year, rose
more than 4 percent.
·
Minimum
down payments for buying second homes, often purchased in China as investments,
would be cut to 15 percent of the apartment’s value, from 25 percent now.
· Home prices have fallen about 10 percent a year for the past three years.
China’s
central bank announced a series of measures on Tuesday aimed at making it
easier for households and companies to borrow money, in the boldest attempt by
the Chinese authorities since the pandemic to revive economic growth, halt a
housing market crash and stop a broad decline in prices.
The
central bank, the People’s Bank of China, cut short-term interest rates and
rates on existing mortgages, reduced minimum down payments for housing
purchases, and freed the country’s state-controlled commercial banks to lend a
larger proportion of their assets.
Pan
Gongsheng, the governor of the central bank, said at
a rare news conference that his agency was ready to free banks to lend even
more money if needed.
Acting
less than a week after the Federal Reserve cut short-term rates by half a
percentage point, the Chinese central bank cut its benchmark seven-day interest
rate to 1.5 percent, from 1.7 percent.
In
addition, the People’s Bank of China told commercial banks that they would be
allowed to reduce, by half a percentage point, how much of their assets they
held in reserve. That move will free the banks to lend an additional $140
billion to companies and households.
The
central bank also made it easier for banks to lend to companies to repurchase
their shares, as well as to major shareholders to buy larger stakes in
companies. Both moves typically bolster stock prices.
Investors,
who have been hoping for officials to take action, reacted positively. Mainland
China’s stock markets, among the worst performing in the world this year, rose
more than 4 percent.
Still,
the central bank’s actions might not be enough by themselves to reverse the
Chinese economy’s slowdown. Surveys have shown that few businesses want to
borrow money almost regardless of interest rates. They worry whether they will
have enough sales to repay loans.
Mr.
Pan said that if needed in the coming months, the central bank was ready to
make another reserve cut, potentially doubling the extra money available for
lending.
The
central bank also authorized lenders to cut interest rates on existing
mortgages by about half a percentage point. That would reduce the rates for
some existing mortgages to below 4 percent.
The
minimum down payments for buying second homes, often purchased in China as
investments, would be cut to 15 percent of the apartment’s value, from 25
percent now, Mr. Pan added.
Lower
mortgage rates will squeeze the revenues of the country’s commercial banks. So the central bank also said it would allow commercial
banks to pay less interest on deposits — a move that may prompt some consumers
to spend more.
Home
prices have fallen about 10 percent a year for the past three years. Before
Tuesday’s actions, some economists had been predicting that home prices would
fall even faster in the coming year. The collapse of many property developers
has undermined buyers’ confidence.
Many
families have trimmed their personal spending after losing much of their
savings because of falling housing prices. Apartments had been the main vehicle
for building wealth in China, representing two-thirds or more of household
assets.
Many
restaurants are struggling. In Beijing, few people were on the streets on
Saturday evening in Sanlitun, normally one of the
city’s busiest neighborhoods for dining and window
shopping. A week earlier, it was easy to get a weekend dinner table at Shanghai
restaurants that used to be packed, with lines out the door.
Sales
of new apartments have plummeted. The failure of many of the country’s largest
property developers has left millions of households waiting for the completion
of apartments for which they paid deposits.
A
growing number of Chinese and Western economists have suggested that the
national government needs to borrow money and start spending heavily. But the
finance ministry has been wary of increases in borrowing.
A
report by Capital Economics, a research firm, said the central bank’s actions
on Tuesday were “a step in the right direction.”
“But
it will probably be insufficient to drive a turnaround in growth unless
followed up with greater fiscal support,” it added.