7 things about China's big stimulus package to revive its flagging economy

To give a fresh fillip to China’s struggling economy, the People’s Bank of China (PBOC) on Tuesday announced a broad range of measures in its bid to support the policy interventions announced by the Xi Jinping government in recent weeks. The Chinese government has been trying to revive the country’s faltering economy, stabilise the housing sector and restore market confidence.  

The announcements by PBOC governor Pan Gongsheng saw a sharp uptick in stocks and bonds that jumped after the press conference that China’s central bank chief addressed alongside National Financial Regulatory Administration Minister Li Yunze and China Securities Regulatory Commission (CSRC) chairman Wu Qing.

Here’s what they announced:

• RRR cut: China’s central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points in the near future, freeing up about $142.21 billion for new lending. Depending on the market liquidity situation later this year, the RRR may be further lowered by 0.25-0.5 percentage points, Pan said.

• Rate cut: China’s central bank will cut the seven-day reverse repo rate by 0.2 percentage points to 1.5 per cent. Pan expects the measure will guide the medium-term lending facility (MLF) rate lower by about 0.3 percentage point, and the loan prime rate (LPR) and deposit rates lower by 0.2-0.25 percentage point. Pan did not specify when the moves would come into effect.

• Mortgage rates reduced: China’s central bank will guide commercial banks to reduce the interest rates on existing mortgages by 0.5 percentage point on average, in order to provide some relief to households.

• Down payment ratio slashed: China will lower the minimum down-payment ratio to 15 per cent for second-home buyers national-wide, from the current 25 per cent.

• Stock market guidance: To revive stock markets in the country, China’s securities regulator will issue guidance for medium and long-term funds to enter the market, and measures to promote mergers, acquisitions and reorganisations. The CSRC will further support China’s state fund Central Huijin Investment in stock purchases and expanding investment scope.

• New tools for capital market: To boost funding for stock purchase, the PBOC announced that it has introduced two new tools to boost the capital market. The first tool is a swap programme with an initial size of $71 billion that allows funds, insurers and brokers easier access to funding in order to buy stocks.

• The second tool provides up to $42.64 billion in cheap PBOC loans to commercial banks to help them fund listed companies’ share purchases and buybacks.

(with inputs from agencies)