China is reportedly mulling a comprehensive set of stimulus measures in response to mounting pressure on the Xi Jinping-led government to revive the world’s second-largest economy.
What Happened: Sources familiar with the matter told Bloomberg that the stimulus proposals, drafted by multiple government agencies, encompass at least a dozen measures to support sectors such as real estate and consumer sentiments, reported Bloomberg.
Interest-rate reductions are also being contemplated as part of the policy options, a source told the publication. This came after Investor speculation regarding potential cuts to China’s longer-term policy rates heightened last week following the unexpected decision by the Chinese central bank to lower its seven-day reverse repurchase rate.
Another source told the publication that the government is seeking to lower costs on outstanding residential mortgages and enhance re-lending through the policy banks to facilitate the delivery of homes.
According to the report, the plan is still being finalized and is subject to potential changes. The State Council is expected to deliberate on the policies as early as this Friday. However, the exact timing of their announcement or implementation remains uncertain.
Why It Matters: The additional measures taken by Chinese authorities will likely get a positive response from the investors. However, the effectiveness of the stimulus will largely depend on its scale and composition once the details have been finalized.
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Given the recent slowdown in economic activity, Xi's government has set a relatively modest growth target of approximately 5% for the year. However, the uncertain outlook and weakened performance cloud the outlook for that goal.
Goldman Sachs analysts expect a prolonged slowdown in the property market, citing that Chinese policymakers are reluctant to use real estate as a short-term stimulus measure and instead aim to reduce the economy’s dependency on the industry.
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