China is intensifying its economic support as a vote on the Country Garden project approaches

  • Five of China’s largest banks cut interest rates
  • A vote on embattled developer Country Garden is scheduled for Friday
  • The central bank lowers the amount of foreign currency that banks must hold as reserves
  • Beijing takes more measures to revive the real estate sector – sources
  • It moves as part of broader measures to support the economy

BEIJING, Sept. 1 (Reuters) – China stepped up measures to boost the country’s ailing economy on Friday, as major banks paved the way for further cuts in lending rates and sources said Beijing was planning more measures, including easing restrictions on home purchases.

As part of the support measures, Chinese authorities have also reduced the amount of funds institutions need to hold in foreign exchange reserves. The measures cheered investors, and analysts said they should prevent further contraction in the struggling real estate sector.

China is grappling with a slowdown that has rocked global markets, with the spotlight now firmly focused on the mounting debt crisis of struggling developer Country Garden (2007.HK) in a sector that accounts for about a quarter of the economy.

As pressure mounted, the authorities launched a series of measures to stimulate the economy and revive the real estate market, with steps including relaxing some borrowing rules and reducing the amount of foreign exchange reserves banks must hold.

Four people familiar with the matter said the country was ready to take further measures, including easing restrictions on home purchases.

Two of the people said that the regulators, including the Ministry of Housing, the Central Bank and the Financial Regulatory Authority, will implement in the coming weeks the measures they have been working on for the past few months under the directives of the State Council.

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Betty Wang, chief China economist at ANZ Bank, said many of the country’s nationwide property easing measures in the past two weeks had exceeded market expectations.

“This is the first time since 2021 that China has announced a series of nationwide real estate easing measures. They will help restore market confidence and prevent the sector from further decline.”

Country garden test

However, in the near term, market sentiment will be affected by the outcome of a crucial test of investor confidence in Country Garden.

Country Garden on Thursday postponed the deadline for creditors to vote on whether to defer payments on a 3.9 billion yuan ($537 million) special bond until Friday at 1400 GMT to give bondholders “sufficient time” to prepare for the vote.

The vote is a major hurdle for Country Garden as it seeks to avoid a default, with one holder of the developer’s dollar bonds saying that if the company cannot roll over its domestic debt, it will not be able to serve offshore bondholders.

“This was a slow-motion car accident,” said the bondholder, who requested anonymity due to the sensitivity of the issue, adding that concerns centered around uncertainty about the broader economy and tensions with Washington.

“Everything they do now will have an impact in five to 10 years.”

Chinese yuan coins and banknotes are shown in this photo illustration taken on February 24, 2022. REUTERS PHOTO/Florence Lu/Illustration/File Photo Obtaining licensing rights

Country Garden, China’s largest private real estate developer by sales, did not immediately respond to a Reuters request for comment.

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Tension in the real estate market has intensified pressure on Beijing to implement supportive measures and raised concerns about the ability of policymakers to halt the decline in China’s broader economic growth.

New home prices in China fell for a fourth month in August, according to a special survey conducted on Friday, as the mortgage debt crisis kept confidence at a low level despite strict support measures.

Reducing interest rates on deposits

The central bank said on Friday it would cut its foreign exchange reserve requirement ratio by 200 basis points to 4% from 6% starting September 15, a move aimed at slowing the pace of the yuan’s decline.

Lenders that cut mortgage interest rates on Friday included Industrial and Commercial Bank of China (601398.SS), China Construction Bank (601939.SS), and Agricultural Bank of China (601288.SS), which slashed their deposit rates by five to five percent. And 25 benefits. Websites from each bank showed the basis points. Several mid-sized banks have also announced that they will start cutting interest rates on a range of deposits by 10 to 25 basis points.

These measures helped raise confidence in the market and affected real estate stocks rose, with the Chinese real estate index CSI 300 (.CSI000952) rising by 2.4% in afternoon trading.

Three sources familiar with the matter told Reuters on Tuesday that major state banks will reduce interest rates on deposits as they prepare to cut interest rates on existing real estate loans soon.

China’s central bank and financial regulator announced Thursday that starting Sept. 25, first-time homebuyers with mortgages can apply to their banks for a lower interest rate on their existing loans.

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The interest rate cuts on deposits are the third of their kind in one year, as the size of the cuts was greater than the previous two rounds in June and September last year.

Lower deposit rates will partly offset various pressures on banks’ tight net interest margins – a key measure of profitability, said Nicholas Chu, a banking analyst at Moody’s.

“The impact of lower interest rates on deposits is substantial, given that nearly three-quarters of Chinese banks’ liabilities are deposits,” Zhou said.

China’s total mortgage loans reached 38.6 trillion yuan (5.29 trillion US dollars) at the end of June, accounting for 17 percent of total bank loans.

($1 = 7.2633 Chinese yuan)

(Reporting by Ziye Tang, Ryan Wu, and Wang Jing) — Additional reporting by Davide Barbuscia in New York;

Our standards: Thomson Reuters Principles of Trust.

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