China Takes Drastic Measures To Shield Economy From Real Estate Storm

China is pulling out all the stops in response to the brewing storm within its real estate sector, aiming to prevent the cascading impact from reaching other sectors and economies.

On a recent note, the world’s second-largest economy has issued a directive to prominent state-owned banks, mandating substantial reductions in both bank deposit and mortgage rates, as reported by Bloomberg.

Bank Rate Cuts And Stimulus Plans

The mortgage rate cuts, which are set to reverberate across a market worth $5.3 trillion, are exclusively targeted at loans for primary residences, in an attempt to cushion the fallout in the housing market.

Simultaneously, the Chinese government is taking shelter behind promises of amplified stimulus measures to drive growth and employment within the country. The recent surge in youth unemployment to over 20% has prompted the authorities to kick into action.

A translated document by the official Xinhua News Agency reveals that Finance Minister Liu Kun and Zheng Shanjie, the chairman of the National Development and Reform Commission, have made commitments to expedite the issuance and utilization of local government special bonds to invigorate investments.

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The report highlights the insufficient domestic demand and challenges confronting certain businesses, indicating a necessity to stimulate private investments via focused policies.

Over the weekend, China announced a 50% reduction in stock-trading stamp duties, coupled with the approval of comprehensive guidelines for affordable housing. Meanwhile, the Chinese Politburo is gearing up for its routine monthly meeting. Speculation is on the rise that this gathering could potentially delve into further policy support for the ailing economy.

Market Reaction

Market reactions have been a mixed bag. While the latest measures seem to have tamed the sell-off witnessed at the start of August, they haven’t yet triggered a full-scale rally across assets exposed to China. In Hong Kong, the Hang Seng index, which is tracked by the iShares MSCI Hong Kong Index Fund EWH managed to post a 2% surge on Tuesday, tallying a 5% climb compared to the previous week, though it remains 9% lower for the month.

U.S.-listed Chinese stocks, including Alibaba Group Holdings BABA, Tencent Music Entertainment Group TME, JD.com Inc. JD and Baidu Inc. BIDU, are all trading about 1.5% higher in premarket trading. The EV-maker NIO Inc. NIO declined over 6% in the premarket after reporting disappointing earnings in Q2.

The dollar-yuan (USD/CNY) exchange rate continues to hold steady around 7.29, close to the peak levels attained in mid-August. As for commodities intricately linked with China, such as copper and silver, their performance remained largely stagnant on Tuesday, both having retreated from the highs of July.

Investors are anxiously awaiting insights into China’s economic state through the upcoming release of the Purchasing Managers’ Indices (PMIs) for manufacturing and services. Projections suggest a minor uptick in the manufacturing PMI, moving from 49.4 to 49.5, although it will remain in contraction. Meanwhile, the services PMI is anticipated to dip from 51.5 to 51.1, marking the lowest point since December 2022.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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