China’s Central Bank Announces Policy Change to Boost Lending
Economic Slowdown Hampers Borrowing Despite Policy Change
- China’s central bank has announced a policy change to allow banks to lend more money.
- However, a nationwide economic slowdown has made companies and households wary of borrowing.
- Growth in China has failed to rebound strongly this year despite previous stimulus measures.
- Previous measures included government-guided interest rate cuts and rate reductions on bank loans.
- Some cities have made it easier to get a mortgage by lowering down payment requirements.
Challenges Faced by Banks
- Many companies are reluctant to borrow more due to weak sales.
- Households are paying down existing mortgages and taking out fewer new ones due to the sinking housing market.
- Banks are under pressure to lend money by buying bonds from indebted provincial and local governments.
- Government bonds are scheduled to be issued in the coming weeks.
Encouragement to Continue Lending to Real Estate Developers
- Beijing has encouraged banks to keep lending to some real estate developers.
- Property firms can no longer borrow on overseas bond markets due to defaults and missed payments.
- The central bank’s regulatory action could lead to further interest rate reductions in the future.
Central Bank’s Statement and Actions
- The People’s Bank of China aims to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity.
- The central bank reduced the reserve requirement ratio for much of the banking system by a quarter of a percentage point.
- The change will take effect on Friday.
Upcoming Data Release
- Investors and economists will be watching for the release of data on the health of the economy in August.
- The National Bureau of Statistics will release numbers on retail sales, industrial production, fixed asset investment, and sales prices for new apartments in 70 large and medium-sized cities.