BEIJING, Sept 1 (Reuters) – China stepped up measures on Friday to shore up its sluggish domestic economy, paving the way for further lending rate cuts by big banks, and a source familiar with the matter said the government has pushed for a housing market. The company is planning further measures, including easing purchase restrictions.
As part of the support package, Chinese authorities have also reduced the amount of funds financial institutions must hold in foreign exchange reserves. The move cheered investors, and analysts said it was needed to prevent a further downturn in the struggling real estate sector.
China wrestles with an economic slowdown that has rocked global markets, putting a firm spot on developer Country Garden’s (2007.HK) spiraling debt crisis, which is now in trouble in a sector that accounts for about a quarter of the economy Light is on.
Amid mounting pressure, authorities have launched a series of measures to stimulate the economy and boost the property market, including easing some borrowing restrictions and reducing the amount foreign-exchange banks must hold in reserves.
The country plans to take further measures, including easing restrictions on home purchases, four people familiar with the matter said.
Regulators, including the housing ministry, the central bank and financial regulators, are set to introduce measures in the coming weeks under the guidance of the State Council, two people familiar with the matter said.
Betty Wang, senior China economist at ANZ, said several nationwide property easing measures in the past few weeks have beaten market expectations.
“For the first time since 2021, China has announced a series of nationwide property easing measures, which will help restore market confidence and prevent further declines in the sector.”
country garden test
In the short term, however, market sentiment will be driven by the outcome of a key test of investor confidence in country gardens.
Country Garden said Thursday that creditors will vote on whether to defer payments on domestic 3.9 billion yuan ($537 million) private placement bonds to give bondholders “enough time” to prepare to vote. The deadline has been extended to Friday at 1400 GMT.
The vote is a key hurdle facing Country Garden as it seeks to avoid default, with one of the developer’s dollar bond holders threatening to service external bondholders if the company fails to extend its domestic debt. It says it will no longer be available.
“It’s a slow car crash,” said a bondholder, who declined to be named because of the sensitivity of the matter, adding that uncertainty over the broader economy and tensions with the U.S. government were at the heart of his concerns. .
“Everything they do now will have an impact five to 10 years from now.”
Country Garden, China’s largest private developer by revenue, did not immediately respond to Reuters’ request for comment.
Property market stress has increased pressure on the Chinese government to implement supportive measures, raising concerns about policymakers’ ability to stem a slowdown in China’s overall economic growth.
New home prices in China fell for the fourth consecutive month in August, according to a private survey on Friday. This is because confidence remains depressed despite a series of support measures due to the real estate debt crisis.
Deposit interest rate reduction
The People’s Bank of China announced on Friday that it will cut the foreign exchange reserve ratio (RRR) by 200 basis points (bps) from 6% to 4% starting September 15, in a move seen as aimed at slowing the pace of the yuan’s decline. .
Financial institutions that lowered mortgage rates on Friday included Industrial and Commercial Bank of China (601398.SS), China Construction Bank (601939.SS) and Agricultural Bank of China (601288.SS), which cut deposit rates by 5-5. Reduced by 25 points. basis points, each bank’s website showed. Several mid-sized banks also announced they would begin cutting deposit rates by 10 to 25 basis points.
The move boosted market confidence and battered real estate stocks rallied, with China’s CSI300 real estate index (.CSI000952) up 2.4% in afternoon trading.
Three sources told Reuters on Tuesday that major state-owned banks may soon cut deposit rates as they prepare to cut existing mortgage rates.
The People’s Bank of China and the financial regulator announced on Thursday that first-time homebuyers who take out a mortgage can apply to their banks for interest rate reductions on existing loans from September 25.
This is the third time in a year that deposit rates have been cut, and the scale of the reduction was larger than previous cuts in June and September last year.
Moody’s banking analyst Nicholas Zhu said lower deposit rates would partially offset various pressures on banks’ narrowing net interest margins, a key measure of profitability.
“The impact of lowering deposit rates is significant, given that nearly three-quarters of China’s bank debt is deposits,” Zhu said.
As of the end of June, China’s housing loan balances were 38.6 trillion yuan ($5.29 trillion), accounting for 17% of banks’ total loan balances.
(1 US Dollar = 7.2633 Chinese Yuan)
Reporting by Ziyi Tang, Ryan Woo and Wang Jing; additional reporting by Davide Barbuscia in New York.Edited by Anne Marie Roantree and Lincoln Feast
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