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Will China’s new stimulus package be enough?

VaselineSeptember 24, 2024

0 2 minutes read

Will China’s new stimulus package be enough?

By City AM – September 24, 2024, 1:00 PM CDT

China unveiled its biggest economic stimulus package since the pandemic, including interest rate cuts and reductions in reserve requirements, in a bid to boost its struggling economy.

Economists expressed skepticism about the effectiveness of the measures, calling for additional fiscal support to generate a sustained economic recovery.

Although the stimulus announcement was met with positive market responses, its long-term impact on China’s economic growth remains uncertain.

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

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

Interest rates on existing mortgages will be cut by an average of 50 basis points, a move designed to help homeowners. The PBoC also introduced a new swap facility to help funds and brokers access financing to buy shares.

PBoC Governor Pan Gongsheng said the measures were aimed at “supporting stable growth in China’s economy” and “promoting a moderate recovery in prices”.

The Chinese economy has struggled to recover from the harsh lockdowns of the Covid era, while the government’s proactive attempt to tackle the housing bubble in 2020 has effectively triggered a full-blown crisis.

Economists are skeptical that the government will meet its annual growth target of five percent as the economy battles 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 rose 3.8 percent, while Hong Kong’s Hang Seng rose 3.6 percent.

However, economists were skeptical about whether the measures would be enough to address the broader economic problems facing China.

“This is a step in the right direction,” said Julian Evans-Pritchard, head of China Economics at Capital Economics. “But it will probably be insufficient to generate a change in growth unless it is followed by more fiscal support.”

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

Song also recommended a “big fiscal policy push” that could help restore momentum in the final quarter of the year.

After AM city

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