Factbox: China Implements Wide-ranging Rate Cuts and Stimulus Measures to Boost Weak Economy – Reuters

By Summer Zhen and Clare Jim

China has unveiled a comprehensive set of stimulus measures aimed at bolstering its struggling economy, stabilizing the housing market, and restoring confidence among investors. Following the announcement, both stocks and bonds saw significant increases.

Here are the main initiatives introduced during a press conference by the Governor of the People’s Bank of China (PBOC), Pan Gongsheng, along with National Financial Regulatory Administration Minister Li Yunze and the Chairman of the China Securities Regulatory Commission (CSRC), Wu Qing:

Reserve Requirement Ratio (RRR) Cut

The central bank will decrease banks’ reserve requirement ratio by 50 basis points shortly, which will release approximately 1 trillion yuan for new lending. Depending on market liquidity conditions later this year, the RRR may be reduced further by an additional 0.25 to 0.5 percentage points, according to Pan.

Interest Rate Reduction

The PBOC will lower the seven-day reverse repo rate by 0.2 percentage points to 1.5%. Pan anticipates that this move will help guide down the medium-term lending facility rate by about 0.3 percentage points, while also reducing the loan prime rate and deposit rates by 0.2 to 0.25 percentage points. The timing of these changes was not clarified.

Pan expects that the alterations in rates will have a neutral effect on bank margins.

Mortgage Rate Reduction

The central bank will instruct commercial banks to cut existing mortgage rates by an average of 0.5 percentage points, aiming to relieve financial pressure on households. This reduction is projected to benefit approximately 50 million households, resulting in a total interest savings of 150 billion yuan per year.

Lower Down Payment Requirements

The minimum down payment for second-home buyers will be reduced to 15% from the current 25% across the country.

Relending Loan Facility

The PBOC will enable commercial banks to utilize 100% of a 300 billion yuan relending loan facility to finance loans designated for state-owned enterprises, which will be used to acquire unsold properties for affordable housing. This percentage is an increase from the current 60%. Additionally, the PBOC is considering allowing lending to quality corporations aimed at purchasing land from developers, alongside providing relending loans when deemed necessary.

Reviving the Stock Market

The CSRC plans to issue guidance encouraging medium and long-term funds to participate in the market while promoting mergers, acquisitions, and reorganizations. It will also further assist the state fund Central Huijin Investment with stock purchases and expanding its investment scope. The CSRC will streamline the registration of equity-focused fund products and foster the innovation of exchange-traded funds (ETFs) and other index products.

Funding for Stock Purchases

To enhance the capital market, the PBOC has launched two new tools. The first is a swap program, initially sized at 500 billion yuan, which will facilitate easier access to funding for funds, insurers, and brokers looking to purchase stocks.

The second tool involves providing up to 300 billion yuan in low-cost PBOC loans for commercial banks, aimed at funding share purchases and buybacks for listed companies.