China cuts interest rates, rolls out other measures to help slowing economy

China rolled out a series of measures on Tuesday aimed at countering a prolonged slowdown in its property market that is weighing on the world's second-largest economy.

China's central bank chairman said he would cut the amount of reserve requirements banks must hold. He also cut interest rates on its loans to commercial banks, reduced down payments required for some home purchases and promised other measures to revive the flagging economy.

Disruptions and job losses during the COVID-19 pandemic, coupled with falling housing prices, have left many Chinese unwilling or unable to spend, despite government efforts to encourage the purchase of homes, electric vehicles and other big-ticket items.

People's Bank of China Governor Pan Gongsheng told reporters in Beijing that the reserve requirement ratio for banks would be cut by 0.5 percentage points in the short term and the central bank would make further cuts. That would free up more funds for lending.

The news sent stock prices, especially those of property developers, soaring. Hong Kong's Hang Seng Index jumped 3.6 percent, while the Shanghai Composite Index gained 3.4 percent.

The central bank is also planning new policies to support the stable development of the stock market, Pan and other officials said.

Analysts say the new coordinated approach to supporting the real estate sector could be more effective than previous one-off measures that have so far provided only limited relief. The Federal Reserve's half-percentage-point interest rate cut last week also eased pressure on the Chinese yuan, giving the PBOC more room to act.

It’s a step in the right direction, Julian Evans-Pritchard of Capital Economics said in a commentary. But it’s unlikely to be enough to revive growth unless it’s followed by more fiscal support, he added.

Unlike the United States, where inflation from a booming economy has been the main concern of policymakers in recent years, China has faced slowing growth and downward pressure on prices from weak demand.

The property market has been struggling since authorities cracked down several years ago on excessive borrowing by developers, leading many to default on their debts and fail to deliver apartments for which buyers had already paid.

Housing is one of the main forms of investment in China and it also supports many other industries, such as construction, interior design and home appliances, among others.

Chinese regulators have avoided massive government spending programs like those Beijing has used in the past to boost growth, for fear of creating a housing bubble. But the disruption and job losses from the COVID-19 pandemic, combined with falling home prices, have left many Chinese unwilling or unable to spend, undermining other drivers of economic activity.

The economy has grown Annual rate of 4.7% In the last quarter, growth rose 5.3% in the first three months of the year. Recently, Chinese President Xi Jinping urged authorities to do more to get growth back on track.

Given President Xi's recent call for policymakers to strive to meet the growth target, we expect increased urgency in the deployment of policy support measures, ING economists said in a report.

Pan, the central bank governor, said down payment requirements for second-home buyers would be cut from 25% to 15% and mortgage interest rates would be reduced by about 0.5%.

It would help 50 million households and 150 million individuals, reducing household interest expenses by about 150 billion yuan ($21 billion) per year on average, he said.

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AP researcher Yu Bing in Beijing contributed to this report.