China to cut amount banks hold in reserve
BEIJING (AFP) – China will cut the amount banks must hold in reserve next month in order to boost lending, according to state media.
The decision comes as the world’s second-largest economy faces multiple headwinds, including a prolonged crisis in the property sector, sluggish domestic consumption and weakening foreign demand.
“People’s Bank of China Governor Pan Gongsheng said at a press conference of the State Council Information Office that the reserve requirement ratio (RRR) will be lowered by 0.5 percentage points on Feb. 5,” state broadcaster CCTV reported.
The move will provide “one trillion yuan ($140 billion) of liquidity to the market,” it added.
China last cut its RRR in September, lowering it 0.25 percentage points to around 7.4 percent.
The central bank’s governor also said Wednesday that more policies to offer support for the country’s struggling property sector would be announced tomorrow.
China’s economy likely grew at its weakest annual rate for more than three decades in 2023, data is expected to show Wednesday, as it was battered by a crippling property crisis, sluggish consumption and global uncertainties.
A group of 10 experts interviewed by AFP forecast China’s gross domestic product (GDP) to have expanded 5.2 percent, which would represent the lowest rate since 1990, outside of the COVID-19 pandemic.
The reading would be an improvement on the three percent seen in 2022, though that year saw business activity hammered by tight health curbs designed to contain the virus.
After lifting the measures, Beijing set itself a growth target of “around five percent” for 2023.
The return of normal life initially sparked a recovery at the start of last year but the long-awaited rebound soon ran out of steam as a lack of confidence among households and businesses battered consumption.
An intractable real estate crisis, record youth unemployment and a global slowdown are also gumming the gears of the Chinese growth engine.
“The main challenge for China’s economic recovery still stems from the property sector,” said Jing Liu, chief economist for Greater China at HSBC.
The property sector has long accounted for around a quarter of China’s economy.
It experienced dazzling growth for two decades, but financial woes at major firms such as Evergrande and Country Garden are now fuelling buyer mistrust, against a backdrop of unfinished housing developments and falling prices.
Purchasing property has long been seen by many Chinese as a safe haven for parking savings, but the price drop has hit their wallets hard.
“Real estate investment, dwelling prices and new dwelling sales are set to fall throughout 2024 before returning as a modest driver of growth in 2025,” said Harry Murphy Cruise, an economist at Moody’s ratings agency.
That crisis, alongside “sluggish labour market conditions,” are dampening consumer confidence, said Helen Qiao, head of Asia Economic Research at Bank of America.
A record of more than one in five people aged 16 to 24 in China were unemployed in May, according to officials, the monthly publication of which has since been suspended.
The uneven recovery has largely benefitted services, as customers have returned to restaurants, transport and tourist sites.
But the level of spending is often lower than 2019, before the pandemic took hold.
A rare bright spark is the statesubsidized auto sector, where a wave of electrification has buttressed domestic manufacturers such as BYD, which dethroned Elon Musk’s Tesla as the world’s best-selling EV maker in the fourth quarter.
However, other areas are struggling, notably industry, which has been weakened by ailing demand at home and abroad.
Chinese exports – historically a key growth lever – fell last year for the first time since 2016, according to figures published by the country’s customs agency on Friday.
The decline is partly explained by geopolitical tensions with the United States and efforts by some Western nations to reduce dependence on Beijing or diversify their supply chains.
“More (Western) companies (are) reducing or maintaining current levels of investments” in China but diversifying elsewhere, said Teeuwe Mevissen, an analyst at Rabobank.
“China saw significant capital outflows” as a result, but also due to increasing its own investments abroad, he told AFP.
All of these challenges “will continue to play an important role in 2024”, Mevissen warned.
This year, China’s growth is expected to slow to 4.5 percent, according to World Bank forecasts.
The average prediction by AFP’s pool of experts was 4.7 percent. Beijing is expected to announce its new growth target in March.