On September 24th, the Chinese Communist Party announced the largest package of economic stimulus measures in years, including interest rate cuts, reserve requirement ratio cuts, and reductions in existing mortgage rates. The official announcement, hastily arranged 48 hours prior, reflects concerns about the economy as senior CCP officials have held several unplanned closed-door meetings. Economists question the effectiveness of the stimulus measures, believing they are insufficient to address the fundamental issues behind China’s spiral towards monetary tightening.
During a State Council press conference on September 24th, Pan Gongsheng, the governor of the People’s Bank of China, revealed that the reserve requirement ratio would be cut by 0.50 percentage points in the “near future,” releasing approximately 1 trillion yuan of long-term liquidity into the financial markets. Additionally, the central bank’s policy rate was lowered from 1.7% to 1.5%, guiding loan market pricing rates and deposit rates downward in sync to maintain stable net interest margins for commercial banks.
Pan Gongsheng further disclosed that “depending on market liquidity conditions for the remainder of the year, there may be an opportunity to further reduce the reserve requirement ratio by 0.25 to 0.5 percentage points.”
According to Bloomberg, for the Chinese economy teetering on the edge of deflationary spiral, this series of easing measures is akin to injecting a significant amount of adrenaline, yet these economic stimulus plans may only buy China some time.
Economists argue that if Beijing aims to lift the roughly $18 trillion economy out of long-term stagnation caused by the property market boom, price weakness, and escalating global trade tensions, these measures at most serve as a down payment.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, told Bloomberg, “I don’t think it’s enough to solve the fundamental problem behind China’s spiral towards monetary tightening.”
He added that China needs to fundamentally restructure its economy and unleash consumption growth.
Bloomberg reported that insiders revealed the official announcement on Tuesday was hastily arranged 48 hours prior. In the preceding weeks, anxieties had been spreading among senior CCP leaders.
Insiders added that with this year’s economic growth targets becoming increasingly unattainable, top policymakers had convened several unplanned closed-door meetings to discuss economic issues.
One source noted that a major coastal province (a significant contributor to China’s economic growth) had warned it would struggle to meet its GDP targets.
Reports indicate that the sudden shift among senior CCP leaders has surprised many officials. Subordinate officials had been waiting for months for feedback from higher-ups on their proposed policies to revitalize the economy.
An anonymous CCP regulatory official remarked that last week they unexpectedly received requests for more information from above, forcing some officials to work overtime through the night leading up to Tuesday’s briefing.