China Unleashes Welcome Wave Of Market-Friendly Stimulus

“We should strengthen the counter-cyclical adjustment of our fiscal and monetary policies, ensure necessary fiscal expenditures, and do a good job in the 'three guarantees” (people's access to compulsory education, basic medical services and safe housing) at the grassroots level,” the meeting said.“We must stop the decline of property prices.”

It said the People's Bank of China (PBoC) should lower reserve requirement ratios (RRRs), implement significant interest rate cuts and add more property developers to a“White List” to allow them to borrow from banks more easily.

It also said local governments should strictly limit the number of new-built residential properties, reduce real estate inventories, increase the quality of existing homes and acquire idled sites from property developers at reasonable prices.

The meeting also called on local governments to finetune their land, fiscal and financial policies to support property markets.

After the United States Federal Reserve lowered its key lending rate by 0.5 percentage points to 4.75% to 5% on September 18, the PBoC on Tuesday announced its plans to lower borrowing costs and allow banks to increase lending.

Initially, the PBoC lowered RRRs by 50 basis points so that banks could provide an additional 1 trillion yuan ($143 billion) of loans to borrowers. It also lowered the 14-day reverse repo rate by 10 basis points to 1.85% but did not reduce the 7-day reverse repo rate, which was lowered to 1.7% in July.

PBoC Governor Pan Gongsheng said there will be another RRR cut later this year. He also signaled a 0.2-0.25% cut in the prime loan rate but did not provide more details.

Zhou Lan, head of the PBoC's monetary policy department, said in a media briefing on September 5 that there are still some constraints to cutting interest rates.

Some economists have said that the PBoC does not have much room to cut rates as 10-year US Treasury bond yields are still higher than China's-a situation that has caused massive capital outflows from China over the past two years.

According to the National Bureau of Statistics (NBS), prices of new homes in first-tier cities fell 4.2% year-on-year in August. Home prices in Beijing, Guangzhou and Shenzhen declined 3.6%, 10.1% and 8.2%, respectively, while those in Shanghai rose 4.9%.

Among the 70 key Chinese cities, Shanghai and Xi'an were the only two cities that saw a year-on-year increase in home prices last month.

A Chinese property columnist using the pseudonym“Uncle Pang” said in an article on Tuesday that home prices in Tianhe district in Guangzhou have dropped 28% from 65,000 yuan to 47,000 yuan per square meter over the past year.

He said property prices in Huangpu district in Guangzhou have also fallen 27% from 30,000 yuan to 22,000 yuan per square meter over the same period.

He said some property investors had previously thought that home prices at prime sites in top-tier cities would rebound after a small correction. But in fact, he said, it has not happened as the years-long correction has already created a long-term market expectation that prices will continue to fall.

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He added that Guangzhou's home prices are falling more than those in Beijing and Shenzhen as the Guangdong capital city's property markets are highly speculative.

After the PBoC slashed the one-year loan prime rate (LPR) by 10 basis points to 3.35% on July 22, some state-owned banks in Guangzhou started offering mortgage rates as low as 3.1% , Nanfang Daily reported. In late August, China Resources Bank reportedly started offering mortgage rates of 2.89%.

“Except in top-tier cities, there are basically no property curbs in China now, but home prices still keep falling. Why? The only reason is that people do not have money to enter the markets,” a Guangdong-based writer said in a recent article.

“Many people have savings but their income is declining, especially the younger workforce,” he said.“Pay cuts and unemployment are very common among young people.”

He said homeowners pushed back their plans to buy bigger homes because they did not want to sell their existing homes at low prices. He said speculators have also adopted a wait-and-see approach.

Read: China on the horns of a Fed rate cut dilemma

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