What’s Going On Here?The Chinese central bank cut a key interest rate on Monday in a bid to reinvigorate the country’s property sector. What Does This Mean?Ever since the Chinese government cracked down on its property sector last year (remember Evergrande?), the country’s developers have been struggling to make ends meet. That’s brought construction projects to a halt, as well as caused homebuyers who paid in advance for a yet-to-be-built property to boycott their mortgage payments. And since the real estate sector accounts for roughly a third of the country’s output, it’s only making the country’s economic slowdown worse.
So in hopes of turning things around, the country’s central bank slashed its 5-year mortgage rate by the equal-most on record on Monday. That’ll reduce borrowing costs on new mortgages across the country, which the government is hoping will lift demand and boost the languishing sector. Why Should I Care?For markets: Priority number one.
Some analysts don’t think this rate cut – or even a second one, which they’re expecting later this year – will do enough to address the crisis. After all, a big part of the issue is that homes are sitting half-finished, so nothing’s likely to change until the stalled projects get over the line. The Chinese government, then, has announced that it’ll offer special loans to help with just that, which might be why the Hang Seng Mainland Properties index rose on Monday.
The bigger picture: China saves for a rainy day.
It's not just mortgage strikes that are a problem, with more and more households in the country now opting to avoid taking on debt altogether. Households amassed 10.3 trillion yuan in bank deposits in the first half of 2022 – a 13% increase from the same time last year and the biggest jump on record (tweet this). That means consumers are spending less now and saving more for tomorrow, which could weigh on economic growth for some time to come. | 