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Ji Siqi

Frank Chen

Amanda Lee

By announcing a slew of bombshell measures to support the economy, Beijing is inching towards a strategic shift in macro policy amid fears of an economic free fall, according to analysts.
The announcements represented a change from policymakers’ previous approach of drip-feeding piecemeal support measures to a coordinated package of stimulus measures, the analysts added.
“We can no longer ‘squeeze out the toothpaste’,” said Zhu Tian, an economics professor with the China Europe International Business School in Shanghai, referring to the previous reluctance of Chinese policymakers to unleash large-scale stimulus.
“China’s economy is now in a serious drought situation. If we don’t release water, we will die of thirst.”
The policy changes, announced by People’s Bank of China governor Pan Gongsheng on Tuesday, included cutting the benchmark policy rate by 0.2 of a percentage point and the reserve requirement ratio by half of a percentage point; reducing the outstanding mortgage rate by half a percentage point and the down-payment ratio for second-time homebuyers from 25 to 15 per cent; and specific policies to provide liquidity to equity markets.
And in line with the measures unveiled a day earlier, China’s central bank on Wednesday cut the rate on 300 billion yuan (US$42.6 billion) worth of one-year medium-term lending facility loans to some financial institutions from 2.3 per cent to 2 per cent.
They are inching towards a shift in strategy, but such a shift is not quite here yet
Alicia Garcia-Herrero, Natixis
“I think there is a bit of panicking [among Chinese policymakers], as they should have cut the loan prime rate and the mortgage-related benchmark rate on Friday, but they didn’t,” said Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at French investment bank Natixis.
The US Federal Reserve slashed interest rates by a half percentage point last week, easing depreciation pressure on the yuan and expanding room for monetary policies in China, though Beijing did not immediately follow the move, surprising the market.
However, the latest package is far from enough to arrest the current economic downturn, as fiscal stimulus should be further ramped up, the analysts added.
Tuesday’s measures are still “not enough”, and they are not even a “stimulus” as the current interest rates for a mortgage in China are “extremely high”, Garcia-Herrero added.
“The joint conference is a signal that they are inching towards a shift in strategy, but such a shift is not quite here yet,” she said.
China’s central bankers will also need to improve the transmission mechanism of injected liquidity, ensuring that money, which currently circulates among state-owned banks and enterprises, can eventually flow to households and smaller businesses, she added.
Larry Hu, chief China economist at Macquarie Capital, said the PBOC’s pivot on Tuesday “signals a broader shift in policy stance”, though more fiscal spending is needed to end the longest deflationary streak in the country since 1999.
“But it could be the beginning of the end, as it signals the rising urgency among top leaders to fight deflation in China,” Hu said.


The world’s second-largest economy is facing prolonged subdued domestic consumption, as a big part of the country’s household wealth is trapped in the faltering property market.
Pan said on Tuesday that the reduction in existing mortgage interest rates is expected to benefit 50 million households, or about 150 million people, reducing household interest expenses by an average of roughly 150 billion yuan (US21 billion) per year.
And this will efficiently boost consumption and investment, Pan added.
That said, it is just too small, relative to the annual household consumption in China of 49 trillion yuan, Hu said.
Beijing might eventually shift to a fiscal package that focuses on addressing the housing crisis, raising pension incomes for rural elders, helping to pay medical insurance for low-income households, and encouraging childbirth, said Lu Ting, Nomura’s chief China economist.
Though there is a low likelihood of a blanket cash or consumption-voucher handout, Lu added.
Kim Eng Tan, managing director of S&P Global Ratings’ sovereign ratings team in the Asia-Pacific region, said the PBOC’s measures were relatively indirect and aimed at “offsetting the negative sentiments that have come in because of the recent economic numbers”.
Tan said policymakers in Beijing remained relatively focused on managing longer-term risks to the economy, including systemic risks, despite growing calls for larger stimulus – which, in their view, might not necessarily deliver higher growth for China.


And the economic situation is not “that terrible” to an extent that it would cause systemic risks, and is hence still tolerable for Chinese policymakers, Tan said.
“Because one of the side effects of putting [forth] a lot of stimulus now is that the old sectors will come back up, it means that people who are trying to find new ways to survive, and new industries to get into, will be less motivated,” Tan said on the sidelines of the rating agency’s credit conference in Hong Kong on Tuesday.
Prior to the PBOC’s new measures, Johanna Chua, head of Asia-Pacific Economic and Market Analysis at Citigroup, described Beijing’s measures so far as remaining “incremental”, and she called for stronger coordination of monetary and fiscal policies “in a meaningful size”.
Chua referenced the measures that Beijing rolled out earlier this year, which encouraged local authorities to buy unsold homes to create affordable housing, while describing it as “stingy”, given that the relending rate still stands at 1.75 per cent.
“It should be much lower. [Beijing] should have stepped in and done a lot more aggressively,” she said while speaking at a conference hosted by rating agency S&P on Tuesday.
“By just doing incremental policies, [policymakers are] wasting policy space.”
Additional reporting by Sylvia Ma


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Some analysts see ‘panicking’ among China’s policymakers, others point to a rising sense of urgency in fighting deflation


Some analysts see ‘panicking’ among China’s policymakers, others point to a rising sense of urgency in fighting deflation.


Is China’s new stimulus a strategic pivot in policy or a short-term tactical move?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Some analysts see ‘panicking’ among China’s policymakers, others point to a rising sense of urgency in fighting deflation

Some analysts see ‘panicking’ among China’s policymakers, others point to a rising sense of urgency in fighting deflation