China announced on Monday a new cut in its key rates in an attempt to boost its economy which is running out of steam and causing concern around the world. The prime one-year loan rate, known as LPR, thus fell from 3.55% to 3.45%. The objective of the Chinese central bank is to support demand for credit from individuals or businesses and therefore activity. The gesture disappointed. Economists surveyed by the Bloomberg agency expected a drop of 15 points and at least on at least two rates when only one was changed. In the Middle Kingdom, however, rates are at a historically low level.
As a result of these announcements, the Chinese shares of large listed companies fell slightly, to their lowest levels for nine months. The yuan also lost 0.22% against the dollar in the morning despite the efforts of the People’s Bank of China (PBC). Last week, Chinese banks reportedly sold nearly $2 billion to support the yuan, Bloomberg reports.
This rate cut comes in a delicate economic context for the country, amplified by the crisis in the real estate sector. All fears now crystallize around the two Chinese promoters Evergrande and Country Garden. The first was declared bankrupt in the United States last week after a first descent into hell two years earlier, while the second risks default on payment at the start of the school year. The fall of these two giants, over-indebted, could then have serious repercussions on the entire financial system of the country.
Despite a slight rebound at the start of the year, following the lifting of restrictions linked to Covid-19, China’s growth posted a slight increase of 0.8% in the second quarter of 2023. The indicators are not looking good: the population’s sluggish consumption is starting to push prices down, exports are lagging, and youth unemployment hit a record high in June (21.3%). So much so that the government announced last week to stop publishing employment figures for 16-24 year olds.
Investors hope that Beijing will launch stronger fiscal stimulus to support its economy. The fact that the five-year rate was not lowered but only a one-year rate was touched may suggest that the government is preparing further action, according to market rumors, the news agency reports. Reuters.
