- As the property crisis worsens in China, Beijing’s hand has been forced and Chinese banks lowered their benchmark lending rates while authorities stepped up support for the property market with additional loans.
- It isn’t clear how effective the rate cuts will be, especially given that the outlook on the Chinese economy is bleak and the sentiment is poor.
And for the longest time, Chinese government officials were long on rhetoric, but light on action to shore up China’s massive real estate sector, with some easing but nothing significant enough to demonstrate that policymakers understood the full extent of the problem.
But as the property crisis worsens in China, with hundreds of thousands of homebuyers on a mortgage strike, and more households saving up and avoiding taking on debt, Beijing’s hand has been forced and Chinese banks lowered their benchmark lending rates while authorities stepped up support for the property market with additional loans.
The rate cuts follow news late Friday of additional financing to prop up the real estate sector which said China would offer special loans through policy banks to ensure property projects are delivered to buyers, adding to signs of official support for an industry grappling with a debt crisis, slumping home sales and worsening sentiment.
The one-year loan prime rate was cut to 3.65% from 3.7%, the first reduction since January, but less than the 10 basis-point drop that economists had expected.
The five-year rate, a reference for mortgages, was reduced by 15-basis-points to 4.3% after being cut by the same amount in May.
It isn’t clear how effective the rate cuts will be, especially given that the outlook on the Chinese economy is bleak and the sentiment is poor.
The People’s Bank of China, the central bank, and two other ministries have made special loans available through policy banks to ensure stalled property projects are delivered to buyers, but completing properties doesn’t necessarily translate into improving the economic stock of the country.
Beijing is hoping that lower borrowing costs will help spur demand for loans, though it’s unlikely to reverse the sharp slump in consumer and business confidence triggered by turmoil in the property market and the stop-start reopening of the economy under the zero-Covid strategy.
