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Will China’s New Stimulus Package Be Enough?

China has unveiled its largest set of economic stimulus measures since the pandemic in an attempt to kickstart growth in the world’s second largest economy.

The People’s Bank of China (PBoC) announced today it had cut its benchmark interest rate by 50 basis points, as well as the amount banks must hold as cash reserves, known as reserve requirement ratios (RRR) – by 20 basis points.

Interest rates on existing mortgages will be reduced by 50 basis points on average, a move targeted to help homeowners. The PBoC also introduced a new swap facility to help funds and brokers access funding to purchase equities.

PBoC governor Pan Gongsheng said the measures aimed to “support the stable growth of China’s economy” and “promote a moderate rebound in prices”.

The Chinese economy has struggled to recover from harsh Covid-era lockdowns while the government’s proactive attempt to address the property bubble back in 2020 effectively sparked a full-blown crisis.

Economists are sceptical whether the government will hit its five per cent annual growth target as the economy battles off deflation and weak demand.

This is the biggest stimulus package since the pandemic, and the moves prompted a positive market response. China’s CSI 300 index closed up 3.8 per cent while the Hang Seng in Hong Kong rose 3.6 per cent.

However, economists were sceptical about whether the measures would be sufficient to address the wider economic problems facing China.

“This is a step in the right direction,” Julian Evans-Pritchard, head of China Economics at Capital Economics said. “But it will probably be insufficient to drive a turnaround in growth unless followed up with greater fiscal support.”

Lynn Song, chief economist for greater China at ING said there was “still room for further easing in the months ahead as most global central banks are now on a rate-cut trajectory”.

Song also recommended a “large fiscal policy push” which could help momentum recover going into the final quarter of the year.

By City AM