Chinese government pledges more support to boost growth
China’s central bank has pledged to continue with support measures for economic recovery as the economy continues to pick up.
The People’s Bank of China (PBOC) said in a statement: “Currently, the external environment is becoming more complex and severe, with a slowdown in the world economy as well as international trade and investment, still high inflation and interest rates in developed countries that are expected to remain elevated.”
Following the third-quarter meeting of the central bank’s monetary policy committee, it said that while the domestic economy continues to recover and improve with increasing momentum, it faces challenges such as insufficient demand.
“We need to provide continuous support, ride the uptick in economic momentum, intensify the strength of macroeconomic policy adjustments, [and] ensure the precise and effective implementation of prudent monetary policy and make good use of countercyclical and cross-cyclical adjustments,” the bank said.
It added that the country’s improving recovery was partly due to increased retail sales in August, and improving industrial profits.
Experts said that credit policies are likely to ease, with the central bank considering cutting the reserve requirement ratio and interest rates if needed. The RRR refers to the proportion of money that lenders must keep in reserve.
Lou Feipeng, a researcher at the Postal Savings Bank of China, said: “The statement shows that strengthening policy adjustments and promoting a sustained improvement in economic conditions are still the main policy tone.”
Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said he expected the PBOC to promote a quick reduction in the interest rates for new mortgages, while new targeted monetary tools may be launched to support the real estate sector.
The central bank’s statement vowed to lower down payment thresholds as well as the mortgage rates of second homes and reduce interest rates for existing first-home mortgages.
“We think there remains the scope for cutting interest rates and the reserve requirement ratio in the remainder of the year,” said Tao Chuan, chief macroeconomic analyst with Shanghai-listed Soochow Securities.
The central bank may cut the RRR in November or December as a forward-looking move to accommodate fast credit expansion in January, while a small interest rate cut may be implemented, Tao said.
“However, considering that it is still uncertain whether the US Federal Reserve will raise interest rates in November, the timing of a rate cut needs to be considered,” he added.
Some other experts are more cautious about the possibility of interest rate cuts in the fourth quarter, given the central bank’s emphasis on keeping the yuan stable amid a growing interest rate differential between the United States and China, which is weighing on the Chinese currency.
Economic conditions expected to improve in 2024
China’s economy is expected to steadily recover in the fourth quarter and further pick up in 2024, according to a leading economist.
Hoe Ee Khor, chief economist of the ASEAN+3 Macroeconomic Research Office (AMRO), said: “Following a strong rebound in the first quarter and a sharp weakening in the second quarter due to stiff headwinds, China’s growth recovery momentum began to stabilize in the third quarter.”
In an interview with the China Daily website, Khor said: “The momentum is expected to strengthen steadily in the fourth quarter and pick up further through 2024, with the help of well-calibrated and targeted policies and a gradual recovery in external demand.”
He added that China’s economic growth should have “a creditable showing” in 2023 in line with government targets, and then accelerate moderately in 2024. The country set this year’s economic growth target at around 5%.
AMRO is an international organization that aims to contribute to securing the macroeconomic and financial resilience and stability of the ASEAN+3 region.
