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China’s latest stimulus measures still don’t go far enough
Mortgage rate cuts and reserve requirement reductions may provide short-term relief but they are no substitutes for boosting domestic demand
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Anthony William Donald Anastasi, PhD, is an assistant professor of economics at the Sino-British College, University of Shanghai for Science and Technology.
The long-awaited stimulus for the world’s second-largest economy has seemingly begun. Last week, the People’s Bank of China governor announced new measures to boost the Chinese economy, including cuts to mortgage rates for existing housing and a reduction in the reserve requirement ratio by half a percentage point.
The PBOC also plans to support the acquisition of real estate companies’ lands by allowing policy and commercial banks to grant loans to eligible companies. These initiatives aim to revitalise land stock and ease financial pressures on real estate developers and homeowners as part of efforts to ensure the country hits its 2024 gross domestic product growth target of around 5 per cent. But will these measures have any real impact?
While the PBOC’s supply-side, monetary stimulus measures – such as reducing mortgage rates and lowering reserve requirements – may provide short-term relief, they fail to address the deeper structural imbalance in China’s economy: its over-reliance on investment and insufficient domestic consumption.
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