2024 Chinese stimulus package was introduced to promote high-quality development in the nation, while counteracting its economic slowdown. This plan was unveiled in September 2024, Spearheaded by the People’s Bank of China (PBOC). As Kavan Choksi mentions, the stimulus package introduces a number of property, capital market and monetary measures focused on restoring investor confidence and stabilizing the economy. It features key reductions in the policy interest rates and reserve requirement ratio (RRR), along with cuts to mortgage rates and down payment ratios.
Kavan Choksi marks a few important components of the 2024 Chinese stimulus package
The 2024 Chinese stimulus package introduced a number of measured aimed at revitalizing key sectors. It particularly focused on stabilizing the property market, boosting the stock markets and monetary easing. Aggressive monetary policies have been rolled out by the PBOC. This includes a more substantial-than-expected reduction in both RRR and policy interest rates. Reserve Requirement Ratio shall be cut by 0.5 percentage points, which shall inject about RMB 1 trillion in liquidity into the financial system. RRR can further be cut by 0.23-0.5 percentage points in 2024.
The seven-day reverse repo rate is the key short-term policy rate of the PBOC and is used for managing liquidity in the banking system. This rate shall be cut by 20 basic points to 1.5 %. Due to this, deposit rates and loan prime rates (LPR) are likely to see reductions, thereby boosting the lending market. Such measures are intended to support public investments and ease credit conditions.
The 2024 Chinese stimulus package includes specific actions for addressing the property sector in China. Mortgage rates on existing homes shall be lowered by around 0.5 percentage points. This would ultimately deliver about RMB 150 billion (US$21.1 billion) in interest savings for the homebuyers. This measure is meant to stimulate household investment and spending while also alleviating financial burdens. China’s central bank shall additionally fund a RMB 300 billion loan initiative with the aim of enabling SOEs or state-owned enterprises to buy unsold homes and subsequently convert them into affordable housing units. The downpayment ratio for buying second homes has been lowered to 15%, and now matches the figure for first-time homebuyers.
As Kavan Choksi says, fiscal expansion is slowly gaining traction among policymakers even though the current package majorly focuses on monetary policy. Reportedly the government is also exploring other fiscal measures. This would include increasing investment in social services, education and healthcare in order to address the needs of the broader public.
After the announcement of the economic stimulus package in China, an almost immediate reaction was seen in the stock market. There was a notable surge in the CSI 300 index which increased by 4.3 % subsequent to the stimulus announcement. This index tracks the largest companies listed on the Shenzhen and Shanghai stock exchanges. Hence, the jump in the index reflects a robust market response that is characterized by increased investor optimism as well as renewed interest in equities. The Shanghai Composite Index jumped 4.15 % following the announcement of the stimulus. This was its largest rise in over four years.
