China's policy stimulus kicks in, paving way for Q4 recovery
Published: Nov 24, 2022 08:32 PM
Staffers work at a new-energy vehicle company in Wuhu, East China's Anhui Province on April 14, 2022. China's new-energy vehicle sector has maintained continuous rapid growth despite the negative effects of COVID-19, chip shortages and lithium price rises, officials from the China Passenger Car Association said. Photo: cnsphoto

Photo: cnsphoto

China is accelerating the implementation of a range of pro-growth measures, with a series of real-estate policy packages kicking in and a possible cut in banks' reserve requirement ratio (RRR) in sight, paving the way for a sound recovery in the fourth quarter, observers said.

China's banking and insurance regulator said on Thursday that nearly all special loans for unfinished or stalled housing projects have been delivered to developers, propelling the real estate sector's rapid recovery.

Industrial and Commercial Bank of China (ICBC), one of China's top five banks, signed a strategic cooperation agreement head-to-head with 12 leading developers, to provide them a total of more than 650 billion yuan ($91.1 billion) of credit lines.

The 12 include Vanke Group, Gemdale Group, Greentown China, Longfor Group and Country Garden.

According to the agreement, ICBC will carry out "all-round cooperation" with relevant real estate enterprise groups in real estate development loans, personal housing mortgage loans, real estate project merger and acquisition financing, rental housing financing, bond underwriting and investment, to meet the reasonable financing needs of those enterprises.

On Monday, Pan Gongsheng, deputy governor of the People's Bank of China (PBC), China's central bank, noted that the PBC will launch a 200 billion yuan loan support plan for six commercial banks, so that they can help guarantee house deliveries, according to a report by the Economic Daily.

"These are very strong signals that the country is strengthening stimulus to bolster and stabilize China's economic growth as challenges are mounting," Dong Dengxin, director of the Finance and Securities Institute of the Wuhan University of Science and Technology, told the Global Times on Thursday.

The last two months of the year are also the time when localities ramp up policy stimulus, special loans and subsidies, Dong said.

The State Council, China's cabinet, said during a meeting on Tuesday that the country will use timely cuts in banks' RRR, alongside other monetary policy tools, to keep liquidity reasonably ample. 

This kind of official message, which is often the prelude to a move by the central bank to lower RRRs, is considered a further boost to the economy, and some market observers predicted the next round of RRR cuts may come in December.

The possible monetary move will fend off liquidity woes, and it indicates China's policy independence amid a wider gap between Chinese and US interest rates, Dong said, noting that the two different approaches of the world's two largest economies will also offer balance to the world.

The previous RRR reduction, a 25-basis point cut to financial institutions' reserve requirements, was in April when the central bank released about 530 billion yuan liquidity.

The weighted average RRR for financial institutions was 8.1 percent after the cut.

Dong cautioned that the fourth-quarter economy is expected to stabilize with these policies, but more efforts are still needed to bolster market expectations. 

China's economy is expected to further recover in the remainder of the year as the government's stimulus package kicks in during the fourth quarter, a spokesperson of China's top economic planner said last week, while warning that "arduous efforts" would still be needed to bolster growth.

With the accelerated implementation of policies, more pro-growth measures, special re-lending facilities for equipment renewal and renovation, and the expansion of medium- and long-term loans for the manufacturing industry kicking in during the fourth quarter, growth momentum and investment confidence will continue to increase, Meng Wei, of the National Development and Reform Commission, told a press conference on November 16.

Major provinces and regions are showing clear signs of recovery and stabilization following the implementation of those stimulus packages, Meng said, adding that during the final two months, economic growth is expected to accelerate.

China's economy grew by 3.9 percent year-on-year from July to September. In the first three quarters, GDP grew by 3 percent to hit a total of 87 trillion yuan.