U.S.China is set to move in the opposite direction as central banks in developed countries, including the US Federal Reserve, move to raise rates as part of a phased withdrawal from Kovid stimulus packages.
The Chinese central bank has cut interest rates again in a bid to help the economy recover from a slump in the real estate sector. The slowdown in growth in the last months of 2021 has prompted the People’s Bank of China to cut lending rates.
The five-year rate on long-term and medium-term loans has been reduced from 4.65 per cent to 4.60 per cent and the one-year rate from 3.8 per cent to 3.70 per cent. This is the second rate cut in months.
As this is a crucial year for President Xi Jinping, there are indications that the rate cut will continue in the coming months. Economic indicators released on Monday showed that the expansion of the new Kovid variant and the crisis in the property sector had affected growth in the last months of last year. This prompted the central bank to cut rates in a hurry.
Real estate is one of the most important sectors in China’s economy. Xi Jinping is expected to come to power for a third time, breaking recent traditions in Chinese politics. The moves for that are becoming active in the ranks. Raising the real estate sector should therefore be seen as a political move.
China’s top law enforcement agency has already warned of possible political repercussions on the country’s economic woes. The group warned that the recession could hurt the country deeply.
A high-level committee of the Chinese Communist Party, chaired by President Xi Jinping, has called for action to be taken in 2022 with an emphasis on sustainable growth. Liu Guoqiang, vice governor of the People’s Bank of China, said yesterday that he would take steps to ensure liquidity in the market and thereby strengthen the economy.
The National Development and Reform Commission, China’s top economic planning agency, has been instructed to plan and implement large – scale infrastructure projects earlier this year to tackle economic uncertainty.
Last year, the government moved to tighten borrowing limits for real estate developers to combat the excessive influence of the real estate market. Such government restrictions have put even the biggest real estate giants in crisis.