China caps week of 'bazooka' stimulus for ailing economy with rate cut

The move comes a day after President Xi Jinping and other top officials admitted to "new problems" in the world's second-largest economy.
China's central bank in Beijing
China's central bank in Beijing(File | AP)
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BEIJING: China on Friday opened up over a hundred billion dollars in cash for its ailing economy, capping a week in which its leadership embark on one of their biggest drives in years to kickstart growth.

The move by the People's Bank of China comes a day after President Xi Jinping and other top officials admitted to "new problems" in the world's second-largest economy and outlined plans to get it back on track.

Beijing this week unveiled a raft of measures to boost the economy, which it has targeted to grow five percent this year -- an objective analysts say is optimistic given the many headwinds it faces.

On Friday, it cut the reserve requirement ratio, which dictates how much lenders must hold in reserve.

Previewing the move on Tuesday, central bank chief Pan Gongsheng said the move will inject around a trillion yuan ($141.7 billion) in "long-term liquidity" into the financial markets.

The bank also trimmed the seven-day reverse repo rate -- the short-term interest paid by the central bank on loans from commercial lenders -- from 1.7 percent to 1.5 percent.

Growth in China is being dragged down by a prolonged debt crisis in the property sector, sluggish domestic consumption and high youth unemployment.

The ruling Communist Party convened Thursday a meeting of its top body, the Politburo, to "analyse and study the current economic situation".

"Some new situations and problems have emerged in the current running of the economy," the Xinhua news agency reported after the gathering.

"We must view the current economic situation comprehensively, objectively and calmly, face difficulties squarely, (and) strengthen confidence," it added.

The need for action was evident on the streets of Shanghai on Thursday, where one business owner said he was feeling the pinch.

"Doing business is even tougher this year than it was during the pandemic," Chang Guiyong told AFP as he stood in his empty hole-in-the-wall eatery in the economic powerhouse. "People no longer want to consume, even white-collar workers are bringing lunchboxes to eat at the office."

'Bazooka stimulus'

The raft of measures unveiled by Beijing this week, including key rate cuts and policies intended to encourage home purchases, have been welcomed by investors, with stocks in Shanghai and Hong Kong up around 10 percent this week.

"Beijing seems determined to roll out its bazooka stimulus in rapid succession," analysts at Nomura said in a note.

"Beijing's recognition of the situation of the economy should be valued by markets," they said.

"We believe more supportive measures will be announced in the next couple of weeks and months by various ministries and local governments," they added.

And a Bloomberg report Thursday said officials were considering pumping more than $140 billion into the country's large state-run banks, marking the first major capital injection of its kind since the 2008 global financial crisis.

The measure -- aimed at giving the banks more room to lend to businesses -- would be implemented mainly through the issuance of "new special sovereign bonds", the report said, citing sources familiar with the matter. The details have not yet been finalised, it added.

Markets in Hong Kong rallied more than three percent Friday alone.

'Too small and too late'

While more work is needed if leaders are to achieve their five percent growth goal, the recent announcements could mean they are increasingly willing to take bolder actions, analysts say.

"Beijing seems finally determined to roll out its bazooka stimulus in rapid succession," Ting Lu, Chief China Economist at Nomura, said in a note.

"Beijing's recognition of the severe situation of the economy and lack of success in a piecemeal approach should be valued by markets," Lu added.

But others warned that the country could still miss its growth goal.

"The authorities will likely unveil additional fiscal policy supports in the next few months," ANZ research said in a note. "The package is sufficient for our 4.9 percent GDP forecast this year," they said.

"However, it remains too small and too late for the ongoing property woes."

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