The moves to support lending and spending with billions of dollars of fresh cash gathered pace when the central bank cut bank reserve requirements and issued new rules to encourage banks to lend more to property companies.
A collapse in China’s real estate market has been one of the key factors hindering the country’s recovery from the shocks of the COVID-19 pandemic. What’s at stake: stable financial markets and a major driver of global economic growth.
HOW IS THE CHINESE ECONOMY DOING?
The Chinese economy grew at a 5.2% annual pace in 2023, exceeding the government's target, and many indicators including factory output and retail sales show signs of improvement. But most economists are forecasting a slowdown this year and next that will drag on global growth. Meanwhile, Chinese stock markets have swooned since late 2023, deepening losses that amount to trillions of dollars over the past several years. A real estate downturn, job losses and other trials of the COVID-19 pandemic have left consumers cautious about spending. That threatens to become what some economists say could be a deflationary spiral as prices for housing and other goods fall, discouraging investment that would create jobs and spur a stronger recovery.
WHY ARE CHINA'S LEADERS ACTING NOW?
The weakening economy and crackdowns on the technology industry, along with disruptions during the pandemic and trade tensions with
A vital priority is ensuring growth is fast enough to generate ample jobs for young workers as they leave school. The rate of unemployment among young Chinese surged in 2023 to a record of over 21%. It's fallen since to about 15% but still remains perilously high, adding to the urgency to get growth back on track.
WHAT IS THE GOVERNMENT DOING?
The central bank will cut the ratio of reserves it holds on behalf of banks by 0.5 percentage points as of
WHY IS THE PROPERTY CRISIS SUCH A BIG PROBLEM?
Dozens of developers defaulted on their debts after the government cracked down on excessive borrowing in the industry several years ago. The largest,
It’s unclear what impact the new policies might have on the overall crisis gripping the property market. Land sales have long been a major revenue source for local governments that also are now heavily in debt. At the same time, stalled construction of new homes has hit contractors and suppliers of construction materials and home furnishings. That has wiped out untold numbers of jobs, rippling through the economy. Sales of new homes and home prices have been falling, discouraging consumers from spending since Chinese families tend to have much of their wealth tied up in property. The industry as a whole accounts for more than a quarter of business activity in
HOW WILL THE MEASURES TAKEN SO FAR AFFECT ORDINARY FOLKS?
As China’s rapid rise as an economic superpower loses momentum, foreign investors and consumers are watching for signs that
The moves to put more money into the economy and encourage bank lending might not go far enough, many analysts said. The cut in required bank reserves frees up more credit, but “it doesn’t tackle the root issue; hence you can lead a horse to water, but you cannot make him drink,”
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