China announced a major new stimulus plan Wednesday, including measures aimed at stabilizing the domestic market and bolstering key industries, as the country braces for economic headwinds amid the ongoing trade war with the United States.

The government is also seeking to shore up market confidence and stay on track to hit its annual growth target of around 5%. The measures include interest rate cuts and liquidity support for sectors like tech and real estate. 

At a press conference Wednesday morning, Pan Gongsheng, governor of the People’s Bank of China (PBOC), announced a cut of 50 basis points to the reserve requirement ratio for commercial banks, which determines the amount of cash they must hold in reserves. The move is expected to unleash additional liquidity of 1 trillion yuan ($138 billion) into the market.

The central bank also lowered the seven-day reverse repo rate, a way to inject short-term liquidity into the banking system, by 10 basis points, and cut mortgage costs for some first-time buyers.

Experts say the three rate cuts signal that the country is ramping up efforts to insulate the economy from the fallout of the trade war and associated slowdown in global demand.

“This is a clear signal of monetary easing,” Liang Jie, an associate professor at Shanghai University of Finance and Economics, told Sixth Tone. “China’s monetary policy is usually cautious, but this time the shift is clear and strong. It’s not just the central bank; other major regulators are also involved in pushing it forward.”

Tariff protections

Over the past few months, Chinese officials and businesses have pledged support for exporters affected by U.S. tariffs.

Wednesday brought more announcements on that front, with Li Yunze, director of the National Financial Regulatory Administration (NFRA), saying that the government would roll out targeted policies to support exporters, including expanded access to credit, accelerated loan approvals, and more personalized financial services.

Amid heightened external pressure, Li added that the NFRA was also working on measures to improve financing access for small and private businesses. 

Chinese manufacturing output contracted sharply in April, according to government statistics.

Stabilizing real estate

One of the most notable stimulus measures unveiled Wednesday was a reduction in home loan interest rates for some buyers. Pan said the PBOC would cut interest rates for first-time homebuyers who buy through the housing provident fund with loan terms of five years or more from 2.85% to 2.6%.

Yan Yuejin, deputy director of the E-House China Research and Development Institute, told Sixth Tone that the cuts were expected and would strengthen the role of housing provident fund loans in supporting consumption. Yan noted that for a 30-year mortgage on a 1-million-yuan house, the cut could save buyers nearly 50,000 yuan. 

“China’s property market has faced steep declines in recent years, and despite various policy initiatives, it has proved difficult to stabilize,” said Liang. “Given its large share in the national economy, even a slight recovery in the real estate sector could provide substantial macroeconomic momentum.”

In addition to housing, the government is ramping up support for technological innovation and industrial upgrades. The central bank announced an increase of 300 billion yuan in refinancing quotas for technology and equipment upgrades, bringing the total to 800 billion yuan.

Pan also provided updates on a new sci-tech bond board, first announced in March, that will support the issuing of tech innovation bonds, and announced a 300 billion yuan increase in relending quotas for agriculture and small businesses, as well as 500 billion yuan in liquidity support for consumption and eldercare. 

“In the short term, these measures will likely help the economy rebound and regain some momentum,” said Liang, who likened them to a “booster shot” for the economy. 

“The key question is how long the effects will last,” Liang added. “That depends heavily on public confidence. If optimism builds, these initial pushes can snowball into sustained recovery.”

(Header image: VCG)