The Chinese government moved to boost the country’s faltering economy on Friday, with top banks paving the way for further cuts in lending rates and sources saying Beijing plans further action, including relaxing home-purchase restrictions. The measures cheered investors, who have been worried about a slowdown in the world’s second-biggest economy and a property crisis that has rattled global markets and put China’s 5% growth target at risk.
China’s central bank cut the funds institutions need to hold in foreign exchange reserves as it seeks to shore up the yuan. It also raised the amount of money banks can withdraw from their accounts, which are used as collateral for some of their loans.
Officials said the moves would help the economy grow steadily, reviving confidence in the property sector and boosting demand for goods and services, which are the main drivers of economic growth. The central bank is expected to cut commercial banks’ reserve-requirement ratio (RRR) by another 25 basis points in December, a source familiar with the matter told Reuters.
In a sign that the government is determined to tackle the property market slump, it also loosened rules to encourage people with good credit histories to purchase homes in the capital city of Beijing. Authorities will let them purchase a third home when they buy their first and set lower down payment ratios for those with multiple children, according to proposals submitted by the city’s housing regulator. According to experts interviewed by the 21st Century Herald newspaper, the policies could be rolled out nationwide nationwide.
China’s property crisis has weighed on investor confidence and hurt traditional growth engines, such as exports and investment. The government has refrained from resorting to a large-scale bailout for the property industry, fearing it could spark broader financial turmoil.
Amid rising tensions over the crisis, a mob of villagers attacked government buildings in southern China’s Guangdong province on Thursday in protest at land sales to the Country Garden developer, Reuters reported. Witnesses said the angry crowd stormed buildings and used sticks, bricks, and their fists to lash out at authorities.
The protests came as Moody’s downgraded Country Garden’s credit ratings by three notches to Caa1 from Caa3 and warned that the company is at risk of defaulting on its bonds. The move was based on the heightened risk that the company may struggle to pay its debts and slow growth, which will hurt bondholders, Moody’s said. The firm added that the company is struggling with tight liquidity and faces a bleak outlook for the property sector. It has pleaded for help from creditors to delay repayment on an onshore 3.9 billion-yuan private bond. Holders will vote on it at 1400 GMT on Thursday. The vote on whether to extend the debt maturity will require the backing of at least 50% of its creditors to pass.
