China’s stimulus package for this year, including recently announced measures aimed at revitalizing its slowing economy, is estimated to total approximately RMB 7.5 trillion (USD 1.07 trillion), which represents around 6% of the country’s GDP.
As I’m writing this, the finer details of the entire stimulus package have not been fully disclosed yet. But still, this stimulus package could potentially become China’s largest stimulus package in nominal terms if fully implemented. The recent package announced on September 24 unveiled the country’s boldest intervention to boost its economy since the pandemic.
In this article, we delve into some details regarding China’s recent stimulus, explore the immediate impacts on investors, and lay out the potential scenarios to prepare us to understand the uncertainties that lie ahead and make well-informed decisions.
Overview of China’s recent stimulus package
Below are some of the measures in the package that we know so far:
Reduction in Reserve Requirement Ratio (RRR): Cut by 0.5 percentage points, injecting around RMB 1 trillion in liquidity. Further cuts of 0.23-0.5 percentage points may occur this year. Reduction in seven-day Reverse Repo Rate: Cut by 20 basis points to 1.5%. Loan Prime Rate (LPR) and deposit rate cuts: Lowered to encourage lending and ease credit conditions.
Lower mortgage rates for existing homes: Reduced by 0.5 percentage points, saving homebuyers RMB 150 billion. Loan initiative for state-owned enterprises (SOEs): RMB 300 billion loan to enable SOEs to buy unsold homes and convert them into affordable housing. Lower down payment for second homes: Reduced to 15%, matching the rate for first-time homebuyers.
Strengthening capital markets:
RMB 800 billion capital market support: Includes an RMB 500 billion facility to help institutions access funds to buy stocks and an RMB 300 billion re-lending facility to help
