Slowing Chinese growth fears continue to surface. But recent actions show Chinese officials are seemingly acting to boost growth.
Concerns about potentially slowing Chinese economic growth have been widespread for several quarters now. And indeed, China’s Q1 growth was 8.1% y/y—a slowdown from Q4 and below its recent average. However, as we’vewrittenbefore, Chinese officials are incentivized—especially during this leadership transition year—to take measures to boost growth.
Most recently, the People’s Bank of China (PBC) announced it would cut interest rates by 0.25%. Their one-year lending and deposit rates now stand at 6.31% and 3.25%, respectively. Additionally, they liberalized banking regulations—increasing the bandwidth on lending rates. Whereas before banks could offer loans for up to 90% of the benchmark rate, they may now offer them for 80%—potentially making loans cheaper and increasing competitiveness between banks. What’s more, the PBC provided some incentive for Chinese savers to boost deposits by setting a bandwidth on deposit rates at 110% of the benchmark rate.
This was yet another recent sign China is increasing pressure on its growth throttles. In just the past few weeks, we’ve seen the following:
All of these actions seem consistent with a goal of boosting growth in the near future. Whether they’re successful or not, it’s key to remember China is now the world’s second largest economy. Whether economic growth moves at 8% or 9% or 10%, that still adds a hefty chunk to global output.
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