China politburo has signalled measures to kickstart the faltering economy as the crisis gripping the country s debt-laden property sector continues to play havoc with growth forecasts.
A warning from the International Monetary Fund IMF that a slowdown in the world's second biggest economy could hurt the global recovery from Covid 19, President Xi Jinping s senior leadership committee rubber-stamped a plan from the central bank on Monday for more targeted lending to businesses. They also outlined support for the housing market.
The People's Bank of China PBOC said it would cut the reserves most banks must hold by 0.5 percentage points, releasing another 1.2 tn yuan $188 bn into the economy.
The leaders had agreed to promote affordable housing, support the commercial housing market and better meet the reasonable housing needs of buyers Xinhua state news agency said.
China's economy is not growing as quickly as anticipated as it faces headwinds from a disrupted global economy, continued Covid outbreaks and the slowing housing market, which was once a key driver of growth but is now seeing a string of defaults.
In October, the IMF lowered its forecasts for China's growth to 5.6% in 2022, which is huge by the standards of developed nations but modest by recent Chinese standards.
The IMF's managing director Kristalina Georgieva said on Monday that China has an important role in the global economy as it recovers from Covid 19 but its growth was slowing.
China has a remarkable recovery, but its growth momentum has been slowing down notably. As China is a key to global growth, taking strong actions to support high-quality growth will help not only China, but the world, Georgieva said.
Analysts at UBS said Monday s policy announcements were a clear signal of monetary easing, but others were less certain and noted that the PBOC insisted that monetary policy would remain prudent.
Julian Evans-Pritchard, a China economist at Capital Economics, said the move was an opening of the fiscal taps, not a flood, and that this easing will cushion but not stop growth from slowing. He predicted that the PBOC would have to cut its main interest rate before long. As economic activity continues to weaken and PBOC becomes more serious about lowering corporate financing costs, we think it will have to take further action, including policy rate cuts. According to Xinhua, attendance at the Monday meeting chaired by Xi said that the housing moves would promote the healthy development and virtuous cycle of the real estate industry.
The risks facing the Chinese economy were underlined by another turbulent day for property developers on Monday, as the backdrop to those words was less clear-cut.
Shares in China Evergrande, the country's second biggest developer, fell 20% on Monday after a weekend statement from the company said it might not be able to repay some of its $300 billion debts.
Markets were on a knife-edge over whether or not it would get enough cash to meet an $82.5 m bond repayment by midnight on Monday. Failure to do so would cause a default and potentially serious cross-defaults throughout the Chinese economy. Evergrande shares went up 7% in early trading in Hong Kong.
For the fourth time since October, most analysts believe that the sprawling group will have to undergo a major restructuring to spread its debts throughout the economy, even if Evergrande does make an eleventh-hour repayment.
Another Chinese developer, Sunshine 100 China Holdings, said on Sunday that it had missed the deadline to repay $179 m in principal and interest payments on a 10.5% bond.
The policymakers are dealing with some serious problems in the property markets, including but not limited to Evergrande, and they do not want to crater the industry. Can they avoid disaster?