China’s central bank unveiled its largest stimulus package since the pandemic on Tuesday to pull the economy out of its deflationary slump and toward the government’s growth target. Analysts have warned, however, that more fiscal assistance is crucial to achieving these goals.
The extensive package, which includes additional funding and interest rate cuts, is the latest attempt by policymakers to restore confidence in the world’s second-largest economy. This comes after disappointing economic data raised concerns about a prolonged structural slowdown.
However, analysts have questioned how effective the People’s Bank of China’s liquidity injections will be, given the extremely weak credit demand from businesses and consumers. They also noted the lack of policies aimed at supporting real economic activity.
“This is the most significant PBOC stimulus package since the early days of the pandemic,” said Capital Economics analyst Julian Evans-Pritchard. “But on its own, it may not be enough,” he added, emphasizing that further fiscal stimulus may be needed to get growth back on track toward this year’s official target of roughly 5%.
Chinese stocks and bonds rallied, with Asian stocks reaching 2.5-year highs as Governor Pan Gongsheng announced plans to lower borrowing costs and ease the mortgage repayment burden for households. The yuan rose to a 16-month high against the dollar.
Pan stated that the central bank would soon cut the reserve requirement ratios (RRR) by 50 basis points, freeing up about 1 trillion yuan ($142 billion) for new lending. He also indicated that further RRR cuts might follow, depending on market conditions later this year.
The property market support package includes a 50 basis point reduction in average interest rates for existing mortgages and a cut in the minimum downpayment requirement to 15% on all types of homes.
China’s property market has faced severe downturns since peaking in 2021, leading to significant defaults by developers and a backlog of unsold apartments. Analysts remain skeptical about whether the latest measures will significantly impact demand or halt falling home prices.
In light of disappointing economic data, the urgency for policymakers to roll out more support has increased. Local governments are accelerating bond issuance to fund infrastructure projects, but analysts argue that more aggressive fiscal policy is required to genuinely stimulate economic demand.