China's central bank unveils sweeping measures to boost economy

China's central bank has introduced a series of major monetary policy adjustments designed to boost economic growth and stabilize the property market. 

People's Bank of China (PBOC) Governor Pan Gongsheng unveiled a comprehensive package of measures on Tuesday, including interest rate cuts and increased liquidity in the market.

Economists and homebuyers told CGTN they welcome these moves as positive developments.

Measures to support housing sector

To tackle ongoing challenges in China's real estate market, PBOC announced that the minimum down payment for second-home mortgages will be lowered from 25 percent to 15 percent nationwide.

The announcement that PBOC will guide commercial banks to reduce interest rates on existing mortgages to align with levels similar to newly issued loans has sparked widespread discussion online. The expected average reduction is 50 basis points.

This is aimed at providing relief to millions of homeowners and stimulate consumer spending. The central bank expects this policy to benefit 50 million households. On average, the total interest expenditure will be reduced by about 150 billion yuan ($21.3 billion) per year.

'Every yuan counts'

Wang Silan, a Beijing resident who purchased his first apartment in December 2020, is breathing a sigh of relief following the recent announcement. 

With a 30-year mortgage pegged at a 4.5 percent interest rate, Wang has been paying monthly installments of 5,700 yuan ($810), he told CGTN.

The topic "100,000 yuan discount in interest payment for one million yuan 30-year mortgage" topped the trending list on Chinese social media Weibo and caught Wang's attention on Tuesday morning.

"Even though the 100,000 yuan savings will not be directly deposited into my bank account, and the monthly reduction might not be that noticeable, it is definitely a welcome change," he said.

"If I had not bought an apartment in 2020, I would definitely buy one now. Renting an old apartment just did not feel right, and I felt like I was paying someone else's mortgage," he added.

The recent policy adjustments could mean much more for Wang. According to the central bank, the average new home loan interest rate has dropped to 3.45 percent as of the end of the second quarter. This indicates that Wang could see a one percent reduction in his mortgage rate.

LPRs on downward trend

The PBOC has reduced the policy interest rate for the seven-day reverse repurchase operation by 0.2 percentage point to 1.5 percent. The loan prime rates (LPR), China's benchmark for loan pricing, are set to decline accordingly.

CGTN learned from a bank associate that her bank is confident that LPRs will go down, but is still working out the details of how new developments would affect homebuyers.

Luo Yan, who also lives in Beijing, told CGTN she bought her apartment at the end of 2023, and it is expected to be delivered at the end of 2025.

She started repaying the mortgage when the roof of her new house was fixed, in accordance to government guidelines. She used her personal housing provident fund loan, a type of housing loan in China that is funded by contributions from employers and employees that has typically lower interest rates than commercial mortgages.

"Luckily, I caught the wave of the central bank's interest rate cut," said Luo.

In May this year, the PBOC decided to lower the interest rate for personal housing provident fund loans by 0.25 percentage point. The interest rate for first-home buyers with a loan term of over five years has been lowered to 2.85 percent.

"Whether house prices go up or down, I am not too worried. New homes in good locations are always in demand," said Luo.

PBOC's Pan said that the central bank will study and allow policy banks and commercial banks to provide loans to support qualified enterprises to acquire land from real estate enterprises in efforts to revitalize the use of existing land.

Li Yunze, director of the National Administration of Financial Regulation, said at the same press conference that as of the end of August, real estate development loans were up compared with the beginning of the year, reversing the downward trend. 

PBOC boosts liquidity, capital markets

The PBOC also unveiled plan to lower the reserve requirement ratio (RRR), the amount of cash that banks must hold in reserve. 

The central bank will reduce the RRR by 0.5 percentage point "in the near future," estimating an injection of approximately one trillion yuan ($140 billion) of liquidity into the financial system.

Depending on market conditions, the PBOC may consider further reductions of between 0.25 and 0.5 percentage point later this year, said Pan.

The PBOC also said it will introduce new tools to support the capital markets. These include a securities, fund and insurance company swap facility, which will allow financial institutions to exchange low-liquidity assets for high-quality, high-liquidity assets. The central bank has allocated an initial 500 billion yuan ($71 billion) for this program.

The central bank also plans to launch a repurchase agreement program to support stock buybacks and increases in shareholdings by listed companies and their major shareholders. This is expected to boost market confidence and stabilize stock prices.

Economists react positively

Economists have generally welcomed the PBOC's latest policy measures.

PBOC's package of policies has exceeded market expectations, said Wen Bin, chief economist at China Minsheng Bank.

"As these policies are gradually implemented and their effects continue to unfold, they are expected to effectively stimulate domestic demand, stabilize credit levels, and contribute to a steady economic recovery," Wen said in a note.

"These policy adjustments will better support the steady and healthy development of the real estate market, effectively reducing the behavior of residents prepaying their mortgages and ensuring the stability of bank operations," Bruce Pang, chief economist of JLL Greater China, told CGTN.

China's A-share markets surged on Tuesday with the benchmark Shanghai Composite Index jumping 4.15 percent at close.

Editor's Note: Wang Silan and Luo Yan are pseudonyms to protect the privacy of the interviewees.