China Maintains Lending Rate Amid Housing Market Challenges

China Maintains Lending Rate Amid Housing Market Challenges

The Wall Street – On June 11, 2024, Chinese men relax next to a screen at a Beijing mall that features a phoenix. On Monday, June 17, China maintained its benchmark lending rate constant despite data indicating continued weakening in the real estate and manufacturing sectors.

China Economy

The benchmark lending rate for medium-term loans with a one-year maturity, which is set at 2.5% by the central bank, remained unchanged. The move was expected: rather than raising borrowing rates from their current low levels, Beijing chose to direct funding toward sectors like high-tech companies that are seen as critical.

The government announced on Monday that factory output decreased 5.6% in May compared to the previous year, down from 6.7% in April. However, economists pointed out that the higher number of workdays this year compared to last year may have had some influence.

Home sales plummeted by 30.5% and property investments decreased by 10% annually, indicating that a number of initiatives aimed at reversing the real estate downturn have not yet taken root.

Major, so-called Tier 1 cities like Shanghai and Beijing saw a 3.2% decline in home prices.

China Maintains Lending Rate

A few years ago, there was a crackdown on property developers who were taking on excessive debt, which led to the current property market crisis. This caused several of them to struggle to deliver units for which buyers had already paid, which in turn caused them to default on their debts. This also affected providers of appliances, building supplies, and other household products to contractors.

Lynn Song head economist for Greater China at ING Economics commented, “This data was certainly on the disappointing side and may ring some alarm bell as May’s policy support package has not yet translated to a slower decline of housing prices, let alone a stabilization.

Many Chinese people are unwilling or unable to spend, which has deprived the economy of another important source of business activity. These factors include the COVID-19 pandemic’s disruptions and job losses as well as declining housing prices, which are a staple form of investment for the majority of Chinese families.

The National Bureau of Statistics’ Liu Aihua told reporters in Beijing, “The fundamentals of economic recovery and long-term improvement have not changed, although the external environment is complex and changeable and the domestic economy is also facing some troubles and challenges.”

As evidence of success, she cited increasing retail sales and investments in a number of high-tech businesses. Consumer spending is being boosted, according to Liu, by a scheme that encourages Chinese households to recycle their old equipment and trade in their cars for new electric vehicles.

Online sales increased 11.5% in May, making up over 25% of all retail sales. In contrast, sales of “audio-visual goods” like televisions and household appliances increased by almost 13% in the same month.

Chinese consumers have also started visiting car dealerships again from January to May, sales of automobiles increased 8.3% over the previous year to around 11.5 million units, according to data released last week by the China Association of Automobile Manufacturers. In May, auto sales increased 1.5%.

While there are numerous positive factors promoting the continuous expansion of the consumer market, buying capacity and consumer confidence still require improvement Liu stated.

Along with recent measures to help ensure that home purchasers can afford the properties they have acquired, Liu announced that new policies would be implemented to support the struggling real estate industry. These measures would include lowering mortgage rates and lowering the required down payment for some property acquisitions.

“It is imperative to acknowledge that certain policies still have comparatively short implementation periods,” Liu stated

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