Cuts, cash, credit: China's latest bid to jumpstart flagging economy

China this week unveiled a bundle of new measures aimed at kickstarting its economy, which has been battered in recent years by unprecedented headwinds including a property sector crisis and sluggish spending.

The stimulus announced by the central bank come after warnings that more state support was needed to get the world’s second-largest economy back on track and hit growth targets for 2024.

Here are the steps announced by Beijing this week, and how experts are reacting:

The People’s Bank of China on Wednesday cut its medium-term lending facility — the interest for one-year loans to financial institutions — from 2.3 per cent to 2.0 per cent. The rate was last lowered in July.

Most Asian markets rose following the announcement, which came two days after monetary policymakers said they would lower its 14-day lending rate.

The raft of measures, including the cuts, are considered the boldest in years as Beijing aims to revive economic activity.

But Ting Lu, chief China economist at Nomura, said the batch of monetary easing measures has left investors “wondering what Beijing will do next on the fiscal front”.

“Eventually fiscal stimulus matters much more when an economy is in a kind of liquidity trap,” he said in a note.

Bank chief Pan Gongsheng also unveiled a reduction in the reserve requirement ratio — which dictates how much cash banks must keep on hand — hoping to boost lending to companies and consumers.

Beijing said the cut would inject around a trillion yuan ($141.7 billion) in long-term liquidity into the financial market.

“The press conference exceeded market expectation,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note.

The loosening of monetary policy “is somewhat overdue, but nonetheless helpful to lift market confidence”, said Zhang.

But he added: “What’s missing in the policy package is fiscal policy.”

One of the major drags on the economy in recent years is the housing market, which has been mired in a slump — home sales volume have tracked a steady decline this year.

But Pan said Tuesday that interest rates on existing mortgage loans would be lowered, which he said would benefit 150 million people across China.

“Lower mortgage rates could allow the households to spare a bit more money to spend and should support consumption recovery,” said Chaoping Zhu, global market strategist at JP Morgan Asset Management.

“It’s almost as if they’re trying to extinguish a fire with a flame thrower.”