China announces coordinated package of policy measures to boost economy, property sector and stock market

Touzibozhu
China H-Shares China Stocks Hong Kong Equity Market Monetary Policy

On the morning of September 24, 2024, the Chinese government unveiled a series of economic measures aimed at boosting growth in sectors like the property market and stock market. The announcement was made at a State Council press conference attended by three key government officials:

  • Pan Gongsheng, Governor of the People’s Bank of China (PBOC)
  • Li Yunze, Director of the National Financial Regulatory Administration (NFRA)
  • Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC)

The coordinated package of policiy measures focus on monetary easing, property market support, and stock market stimulation, stands in contrast to the piece-meal measures of the past and provided a much needed boost the equity markets in China and Hong Kong.

Equity market participants cheered the stimulus measures and bought China and Hong Kong stocks with full enthusiasm. Consequently, at day's end, the Hang Seng Index, Hang Seng China Enterprise Index and the Shanghai Stock Exchange Index rose 4.13%, 5.09% and 4.15% respectively.

The many policy measures can be categorized as follows:

Monetary and Credit Policies

  • The Reserve Requirement Ratio (RRR) will be lowered by 0.5 percentage points, releasing approximately Rmb1 trillion in long-term liquidity. Additional cuts of 0.25-0.5 percentage points are expected by year-end.
  • The 7-day reverse repo rate will be cut by 0.2 percentage points, lowering the Loan Prime Rate (LPR) and deposit rates by 0.2-0.25 percentage points.
  • Mortgage rates for existing loans will be reduced by 0.5 percentage points, benefiting around 50 million households with an estimated annual savings of Rmb150 billion.
  • The six largest commercial banks will be permitted to replenish their core Tier 1 capital.
  • The loan renewal policy for small and micro enterprises (SMEs) will be expanded to include all SMEs and some medium-sized businesses.

Property Market Policies

  • The minimum down payment for second homes will be lowered nationwide from 25% to 15%, aligning it with the requirement for first homes.
  • The PBOC’s relending facility for affordable housing will increase its funding coverage from 60% to 100% of the loan principal.
  • Key property financing policies, such as the 16-point plan from November 2022, will be extended to the end of 2026.
  • Authorities will explore supporting the acquisition of land reserves by qualified corporations through local government bonds and banks, easing financial pressure on property developers.

Stock Market Policies

  • The PBOC will introduce new tools to support liquidity for financial institutions:
    * A swap facility with an initial quota of Rmb500 billion will allow securities firms, fund managers, and insurance companies to obtain liquidity by pledging assets.
     * A special relending facility, initially capped at Rmb300 billion, will guide banks in offering loans for share buybacks and increased shareholdings by major investors at an interest rate of 2.25%.
  • The CSRC will introduce policies to facilitate mergers and acquisitions (M&As) and support the acquisition of unprofitable assets by listed companies.
  • The CSRC will also promote long-term investments in the stock market and improve the quality and value of listed companies.
  • The pilot program for bank-affiliated financial asset investment companies will be expanded to 18 cities, with higher limits on equity investments.

The significance of this development cannot be understated, as it represents the first time since the pandemic that the Chinese government has launched such a concerted effort to boost the second largest economy in the world.

It has been hailed in the media as a "policy bazooka", providing a much needed boost to the economy, real estate market and the stock market.

PBOC Governor, Pan Gongsheng, has been quoted as saying, "if 500bn is not enough, then we can do another 500bn". The message could not have been more clear. The PBOC has given the all clear signal to China equity investors. Let the animal spirits revive.