China provides stimulus package to boost economic recovery
THE State Council executive meeting chaired by Premier Li Keqiang on August 24 announced various stimulus packages to boost economic recovery from the 2022 low point of April.
Although the Chinese economic growth rate slowed to only 0.4% yearon-year (y/y) in the second quarter from 4.8% y/y in the first quarter 2022, policy measures instituted in May are already showing a discernible upward trend in the June data before easing in July.
Chinese industrial production grew by 3.8% y/y in July after a 3.9% y/y gain in June, a 0.7% y/y rise in May, falling by 2.9% y/y in April and a 5.0% y/y jump in March. Chinese retail sales followed a similar trend as they rose by 2.7% y/y in July from a 3.1% y/y gain in June after a 6.7% decline in May, a 11.1% y/y plunge in April and a 3.5% y/y drop in March.
The most worrying trend for Chinese policy makers is the downturn in the real estate sector, which previously accounted for a quarter of the Chinese economy, either directly or indirectly. Average new home prices in China’s 70 major cities dropped by 0.9% y/y in July after a 0.5% y/y decline in June. This was the third consecutive month of y/y decrease in new home prices, and the steepest fall since September 2015, amid Covid-19 outbreaks in some cities and a downturn in the property sector.
On a monthly basis, new home prices were flat for the second consecutive month, as already fragile sentiment was further corroded by a mortgage boycott by home buyers upset by unfinished projects, despite continued stimulus measures.
In addition to the policy package aimed at stabilising the economy, an additional 19 follow-up policies will be rolled out to provide greater synergy. The goal of this policy mix is to promote economic stabilisation and boost growth, keep major economic indicators on an upward trend and provide for the best results possible.
“We must seize the window of opportunity and maintain the appropriate policy scale. The funds available should be put to best use. This will expand investment, boost consumption and help keep economic activities on a steady course,” Premier Li said.
The August stimulus package amounts to a total of 1.1 trillion yuan (R2.7 trillion or about 43% of South Africa’s economy in 2021), consists of 300 billion yuan of the policy-backed and development-oriented financial instruments to specific projects, which will be increased by 300-plus billion yuan, and the balance of the special-purpose bond quota worth more than 500 billion yuan should be well utilised pursuant to law and issued by the end of October. This will help boost effective investment, spur consumption and address the problem of insufficient loan demand.
In addition to the stimulus from the 1.1 trillion yuan, the central bank of China has cut its mortgage lending rate for the second time this year as it seeks to limit the fallout from the liquidity crisis in the property sector. The five-year loan prime rate was lowered to 4.3% from 4.45% on August 22.
The magnitude of the cut exceeded the median forecast from economists and matched the May 2022 rate cut that was the largest on record. The reduction in the benchmark loan prime rate will cut borrowing costs on new mortgages nationwide.
The State Council executive meeting said the effect of the loan prime rate reform would continue to be harnessed, to lower the costs of corporate financing and consumer loans.
It also said measures would be introduced to support the development and investment of private businesses and advance the sound and sustained development of the platform economy.
Local governments will be allowed to adopt city-specific policies, including flexible credit loans to meet people’s basic housing needs and the need for improved housing conditions.
The border entry and exit of business personnel will be facilitated.
Payments of government-levied charges will be deferred for one quarter.