China Unveils Major Policy-Easing Measures Amid Trade War Pressures
China Unveils Major Policy-Easing Measures Amid Trade War Pressures
China has introduced a broad set of monetary easing measures aimed at reviving economic momentum as the country grapples with the impact of escalating trade tensions with the United States. The announcements came just hours after Beijing confirmed that Vice Premier He Lifeng is set to meet U.S. Treasury Secretary Scott Bessent in Switzerland later this week to address tariff-related issues.
At a press conference on Wednesday, People’s Bank of China (PBOC) Governor Pan Gongsheng said the central bank would lower the seven-day reverse repurchase rate by 10 basis points to 1.4%, a move that will effectively reduce the loan prime rate by a similar margin.
In addition, the reserve requirement ratio (RRR) for banks will be reduced by 50 basis points, a move expected to inject 1 trillion yuan (approximately \$138.6 billion) into the financial system. The interest rate cuts will take effect Thursday, while the RRR adjustment is scheduled for May 15.
Policymakers also outlined targeted measures to support priority sectors, including technology, housing, and consumer services. This includes launching a 500-billion yuan re-lending program focused on boosting consumption and elderly care services.
Governor Pan announced that mortgage rates for loans under the National Housing Provident Fund will be reduced by 25 basis points, bringing the five-year rate for first-time homebuyers down to 2.6%. The central bank will also phase out the reserve requirements for automotive finance firms, reducing them from 5% to zero.
While these actions signal Beijing’s increased urgency in addressing slowing growth, some experts argue their effectiveness may be limited. One economist noted that credit demand has shown weak sensitivity to interest rate adjustments, which could blunt the impact of monetary easing.
Financial regulatory head Li Yunze said the government is preparing additional support measures for small and medium-sized enterprises and private businesses affected by recent tariffs to assist struggling sectors. These are expected to be rolled out soon.
The timing of these moves aligns with an easing in depreciation pressure on the Chinese yuan, which has recently stabilized near the 7.20 per dollar mark after falling to record lows earlier in the month. This relative stability has given the central bank more flexibility to implement rate cuts without risking significant capital flight.
However, analysts pointed out that fiscal policy remains notably absent from the stimulus package. New government spending or tax cuts may only emerge if macroeconomic indicators worsen further.
Beijing has previously stated it is prepared to act if needed, but until now has favored incremental steps. In a recent high-level economic policy meeting, leaders emphasized the need to plan for “worst-case scenarios,” suggesting further support may be in the pipeline.
Additional interest rate and RRR cuts could follow later this year, especially if U.S. monetary policy loosens. One forecast suggests another 20-basis-point reduction in interest rates and a further 50-basis-point cut to the RRR are likely by year-end.
China’s 10-year government bond yields remained largely steady following the announcement, suggesting a cautious market response.
The confirmation of upcoming talks between He Lifeng and Scott Bessent marks the first formal engagement between China and the U.S. since President Donald Trump sharply increased tariffs on Chinese imports to 145%, prompting retaliatory tariffs from Beijing of up to 125%.
If successful, the Switzerland meeting could pave the way for renewed dialogue and potentially ease the economic standoff between the world’s two largest economies.
