### Summary
China's central bank, the People's Bank of China (PBOC), has announced that it will coordinate financial support to address local government debt problems, as concerns grow over the spillover effects of the country's property crisis on its financial system.
### Facts
- 🏢 China's central bank, the PBOC, will coordinate financial support to resolve local government debt problems as the country's economy faces downward pressure.
- 📉 China unexpectedly lowered interest rates last week to boost economic activity, but analysts believe that more forceful measures are needed.
- 💰 Financial departments are urged to support local debt risk resolution, enhance debt risk prevention and resolution tools, strengthen risk monitoring, and prevent systemic risk.
- 📝 China's Politburo has stated its focus on preventing local government debt risks, but no specific plans have been announced yet.
- 💸 Analysts believe that a coordinated rescue package may involve additional funding, refinancing channels, debt swaps and extensions, and possible debt restructurings.
- 💼 Debt-laden municipalities pose a significant risk to China's economy due to over-investment in infrastructure, plummeting returns from land sales, and high costs related to COVID-19 containment.
- 🏦 The PBOC meeting also emphasized the need for banks to increase lending and support the real economy, particularly the property sector, small firms, technology innovation, and the manufacturing sector.
- 💳 However, consumers and businesses may not be willing to spend or borrow given the uncertain economic climate.
- 💸 New bank lending in China fell to a 14-year low in July.
### Summary
China's central bank has announced that it will coordinate financial support to address local government debt issues, aiming to stabilize the economy and reassure investors amidst concerns of a property crisis spillover.
### Facts
- 🏦 China's central bank, the People's Bank of China (PBOC), will coordinate financial support to resolve local government debt risks.
- 🏢 China's property crisis is deepening and posing risks to the financial system.
- 💰 China unexpectedly lowered key interest rates and is expected to cut prime loan rates on Monday.
- 💼 Financial departments are urged to coordinate support, prevent debt risks, strengthen risk monitoring, and avoid systemic risk.
- 📜 China's Politburo has reiterated its focus on preventing local government debt risks.
- 💸 Bloomberg reported that China plans to offer local governments a combined 1 trillion yuan ($137 billion) in bond issuance quotas for refinancing.
- 🔍 Analysts suggest a coordinated rescue package could involve additional funding, refinancing channels, debt swaps, payment extensions, and debt restructurings.
- 💵 Debt-laden municipalities represent a major risk to China's economy and financial stability.
- 📉 The property sector slump has worsened local government finances and caused developers to default on debts.
- 🤝 Fitch Ratings expects the central government to avoid outright bailouts to maintain debt reduction efforts.
- 👥 The joint meeting attended by PBOC officials urges banks to increase lending for the real economy.
- 💳 The PBOC will optimize credit policies for the property sector and strongly support small firms, technology innovation, and the manufacturing sector.
- 💼 Many consumers and companies are reluctant to spend or borrow due to the uncertain economic climate.
- 📉 New bank lending in China fell to a 14-year low in July.
### Summary
China's central bank will coordinate financial support to address local government debt problems and prevent systemic risk, as concerns grow over the impact of the country's property crisis on the financial system.
### Facts
- China's central bank, the People's Bank of China (PBOC), will coordinate financial support and tools to prevent and resolve local government debt risks.
- China's deepening property crisis has raised concerns of a spillover into the financial system.
- China unexpectedly lowered interest rates last week and is expected to cut prime loan rates to stimulate economic activity.
- The Politburo has emphasized its focus on preventing local government debt risks but has not announced specific plans yet.
- China may offer local governments 1 trillion yuan ($137 billion) in bond issuance quotas for refinancing.
- A coordinated rescue package could involve additional funding, debt swaps, payment extensions, and debt restructurings.
- Debt-laden municipalities pose a major risk to China's economy and financial stability.
- Fitch Ratings expects the central government to avoid outright bailouts of troubled municipalities.
- The central bank urged banks to increase lending and optimize credit policies for the property sector, small firms, technology innovation, and the manufacturing sector.
- However, consumer and company spending and borrowing remain low due to economic uncertainty.
- New bank lending in July fell to a 14-year low.
### Summary
House price inflation in Britain slowed in June, with the exception of London, as high mortgage rates deter buyers. Meanwhile, in the US, policymakers are divided over the need for more interest rate hikes, and China's central bank cut a key interest rate due to economic risks.
### Facts
- 💰 Average UK house prices increased by 1.7% in June, down from 1.8% in May, with London being the only region where property prices fell by 0.6%.
- 💸 Policymakers in the US are divided over the need for more interest rate hikes, with "some participants" concerned about the risks of raising rates too far, while "most" officials prioritize battling inflation.
- 🇨🇳 China's central bank unexpectedly cut a key interest rate, the one-year medium-term lending facility (MLF), by 15 basis points to 2.5%, and also lowered the seven-day reverse repo rate to 1.8%.
- 📉 The rate cuts in China were implemented due to a deteriorating property market, weak consumer spending, and sluggish economic data, including trade and consumer price numbers as well as record-low credit growth.
### Summary
China is expected to cut lending benchmarks, including the mortgage reference rate, to revive credit demand and support the struggling property sector.
### Facts
- 🏦 China is predicted to lower lending benchmarks at the monthly fixing, including the loan prime rate (LPR).
- 📉 All participants in a survey of 35 market watchers anticipate cuts to both the one-year LPR and the five-year LPR.
- 📊 The majority of participants expect a 15-basis-point cut to the one-year LPR, while the remaining forecast a 10 bp reduction.
- 📈 Meanwhile, 94% of respondents predict a reduction of at least 15 bp to the five-year LPR, which serves as the mortgage reference rate.
- 💰 Market expectations for further monetary easing are driven by declining credit lending and increasing deflationary pressure.
- 🏠 The central bank has promised to adjust and optimize property policies to address the deepening crisis in the property market.
- 📱 Analysts believe that the central bank may also implement reserve requirement ratio (RRR) cuts and balance sheet expansion to manage risks in key sectors.
Source: [Reuters](https://www.reuters.com/business/chinas-loan-benchmarks-face-big-cut-next-month-fixing-poll-2022-10-28/)
### Summary
The People's Bank of China is expected to cut interest rates, but may need to take a larger action to calm the uncertainty in the market. Other factors like the US Federal Reserve's Jackson Hole Symposium and the BRICS summit will also impact investor sentiment.
### Facts
- 💰 The People's Bank of China is expected to cut interest rates to soothe market concerns.
- 💼 Bank of Korea and Bank Indonesia are expected to keep interest rates on hold this week.
- 🌍 The US Federal Reserve's Jackson Hole Symposium and the BRICS summit will affect investor thinking.
- 📉 Chinese policymakers' conservative nature may result in more aggressive moves in the interest rate cut.
- 🔒 The currency is already weak and vulnerable, posing a risk to further cuts.
- 📉 Economists are lowering Chinese GDP growth forecasts, doubting the country will achieve its 2023 goal.
- 🏘️ The real estate crisis and the scale of indebtedness raise questions about the stability of the shadow banking system.
- 🔧 Beijing is taking steps to boost confidence, but measures seem insufficient.
- 📉 Chinese blue chip stocks have decreased by 6% in the last two weeks.
- 🌐 Global markets are facing a deteriorating backdrop, with the dollar surging, US Treasury yields rising, and stock markets experiencing instability.
- 🗓️ Key developments on Monday include China's interest rate decision, Thailand's Q2 GDP, and Hong Kong's July inflation.
China's decision not to cut its five-year loan prime rate to revive the real estate sector and boost the economy is expected to have a limited impact and further weaken confidence, according to economists.
The current housing market is facing challenges due to rising interest rates and higher prices, leading to a slowdown in home sales, but the market is more resilient and better equipped to handle these fluctuations compared to the Global Financial Crisis, thanks to cautious lending practices and stricter regulations.
Global investors are urging China to increase spending in order to revive its struggling economy and address the deepening property crisis, as modest interest rate cuts and vague promises of support have failed to restore confidence in the market. Investors are demanding more government stimulus before considering a return, and the lack of a policy response from Beijing has raised concerns among fund managers. The wishlist of investors includes increased government spending, particularly for local governments and banks, as well as measures to address the property sector crisis and improve communication regarding private business interests.
China's economy is at risk of entering a debt-deflation loop, similar to Japan's in the 1990s, but this can be avoided if policymakers keep interest rates below a crucial level to stimulate economic growth.
China is implementing measures to boost household spending, ease property policies, increase car purchases, improve conditions for private businesses, and bolster financial markets in an effort to revive the economy's recovery and improve the business environment.
China's cabinet has approved guidelines for the planning and construction of affordable housing in an effort to support the struggling property sector and promote the healthy development of the market. Additionally, the central bank has announced measures to relax residential housing loan rules to boost loan applications and house purchases, while emphasizing that houses are for living in rather than speculation.
China has introduced new mortgage policies to boost its property market and stimulate economic growth by allowing more people to be classified as first-time homebuyers and receive lower mortgage rates.
China's hybrid economic model, which combines state planning with market forces, is facing challenges as the country struggles with weak economic indicators, including high youth unemployment and falling prices, and the property market experiences financial distress due to government interventions and market dynamics; policymakers must implement short-term measures to boost market confidence, such as managing property-sector defaults and easing housing investment restrictions, while also undertaking long-term structural reforms to address moral hazards, promote fiscal responsibility, and protect private businesses and foreign investors.
Chinese state-owned banks are expected to lower interest rates on existing mortgages, with the quantum of the cut varying for different clients and cities, in an effort to revive the property sector and boost the country's economy.
China's property crisis, led by embattled property giants like Evergrande, is causing devastating consequences for small businesses and suppliers who are owed large sums of money, putting both market confidence and debt repayments at risk. The crisis has affected the entire industry and could worsen if immediate actions are not taken to prevent contagion and spillover fears. The Chinese government is urged to abandon restrictive measures on real estate credit, carry out bankruptcy proceedings for developers with capital-outflow problems, and stop intervening in the market to stabilize home prices. The outlook for Chinese developers is deteriorating, particularly for distressed developers, while state-owned developers have a stable outlook. The Chinese housing market is facing a severe crisis that is worse than Japan's market in the early 1990s, posing challenges in filling the gap in spending left by the collapsing housing market.
Guangzhou, the first major Chinese city to do so, has announced an easing of mortgage curbs in an effort to revive the property sector and stimulate the economy, a move that is expected to be followed by other top-tier cities.
Summary: Rising interest rates have revealed issues in home loan markets, causing stagnation in housing markets and difficulties for borrowers in countries like the US, UK, Sweden, and New Zealand, highlighting the value of the Danish system of long-term fixed-rate mortgages with prepayable options and flexible transferability.
China's economic slowdown is being caused by a property market downturn, softening demand for exports, and low household spending, which poses risks to financial stability and could lead to deflation and deeper debt problems. Economists are uncertain if the government's current measures, like interest rate cuts, will be enough to boost consumption and meet growth targets. Structural reforms and measures to increase household consumption are needed to address the imbalance in the economy.
China has lowered requirements for homebuyers in an attempt to revive its struggling property market and address the financial crisis.
China is planning to relax home-purchase restrictions and implement new measures to address the debt crisis in its property sector, which accounts for a quarter of its economy, in an effort to boost consumer demand.
Chinese homebuyers remain skeptical about entering the property market despite the Beijing government's measures to revive the economy, including lower mortgage rates, due to concerns about the slowing economy and the deepening crisis in the debt-ridden property sector.
The authorities in Beijing and Shanghai are implementing measures to ease mortgage lending rules in an effort to stimulate a slowing housing market, including allowing first-home buyers to enjoy preferential mortgage rates regardless of their previous credit records. This move is expected to drive home sales in the short term, but the long-term impact is uncertain due to low consumer confidence in the face of economic uncertainty.
China's recent stimulus measures to boost its economy, including reducing down payments for homebuyers and lower rates on mortgages, are impressing the markets and may dictate the direction of the commodity market.
China's relief measures to support the property sector have spurred a home-buying spree in Beijing and Shanghai, with transaction volumes in both cities increasing significantly, indicating robust housing demand; however, concerns persist that this demand may not be sustained due to other restrictions and a faltering growth outlook.
China's economic slowdown is posing a significant challenge to President Xi Jinping's agenda, forcing him to make difficult choices and potentially relinquish some control over the economy. The slump in housing sales and the crackdown on private capital are among the factors contributing to the economic setbacks, prompting calls for change and a reevaluation of economic policies under Xi's highly centralized leadership. However, Xi seems reluctant to make major changes to his strategy, opting for a hands-off approach and avoiding a big rescue plan for distressed developers and local governments. The central government's control over taxes and the need to revamp the fiscal system further complicate the situation. Restoring government finances while reassuring private investors is a daunting task that requires strong leadership and potentially contentious policy changes. The upcoming Communist Party meetings will shed light on how Xi plans to restore confidence in his economic agenda, but some economists and former officials warn that time may be running out for China to embrace necessary reforms.
China is considering further easing measures in the property market and increasing fiscal support for infrastructure investment to boost economic growth in the fourth quarter, as sluggish demand remains a challenge.
Five major state banks in China, including ICBC and China Construction Bank, will lower interest rates on existing mortgages for first-home loans as part of support measures to aid homebuyers and stabilize the property sector.
China's measures to support the property sector are lowering monthly mortgage payments for homeowners but also reducing interest earnings on bank deposits, highlighting the challenge of promoting consumer spending in a weak economic climate.
China is showing signs of a balance-sheet recession similar to Japan's, with accumulating debt and falling house prices, but there are key differences that suggest it may not face the same fate. State-owned enterprises and property developers account for much of China's debt, and households have low debt relative to their assets. However, the Chinese government's reluctance to increase spending could prolong the recession.
Chinese commercial banks are concerned that the central bank's recent cut to mortgage rates will not be enough to prevent a surge in mortgage prepayments, which could squeeze bank margins.
Signs of improvement in China's economy, such as improving credit demand and easing deflationary pressures, may not be enough to stabilize the economy due to bigger concerns of decreasing affordability, tight wages, and rising costs that have not been addressed. A comprehensive policy revamp may be necessary for China's economy to recover.
The Federal Reserve's decision not to raise interest rates has provided little relief for Americans struggling with the high costs of borrowing, particularly in the housing market where mortgage rates have reached their highest level in over two decades, leading to challenges for potential and current homeowners.
The Federal Reserve's indication that interest rates will remain high for longer is expected to further increase housing affordability challenges, pushing potential first-time homebuyers towards renting as buying becomes less affordable, according to economists at Realtor.com.
Major Chinese banks have reduced rates for outstanding home loans in an attempt to stimulate demand in the country's troubled property sector, but analysts doubt that the cuts will be sufficient to boost demand due to low consumer confidence and income expectations.
China's economic outlook, particularly for the real estate sector, is expected to become clearer in the last three months of the year, with potential government support and loosening of restrictions to stabilize the housing market and allow the economy to recover fully by mid-2024. However, economists predict that real estate growth will remain weak and prices may fall gradually, as significant price declines could have adverse social consequences.
The strain from interest rate hikes is starting to impact the real estate market, particularly in Germany and London, as well as the Chinese property sector; corporate debt defaults are increasing globally; banking stress remains a concern, especially regarding smaller banks and their exposure to commercial real estate; and the Bank of Japan's tighter monetary policy could lead to a sharp unwind of investments, potentially impacting global markets.
China's property market blowup, which has led to major developers struggling and low housing sales, may not necessarily result in a financial crisis due to the unique characteristics of China's housing market and Beijing's control over the financial system, but it is expected to cause significant damage to bank balance sheets and potentially lead to widespread financial turbulence if support is not provided to local governments and small lenders.
China's property crisis poses significant challenges for an economy heavily reliant on real estate, although there are some sectors that may benefit from the situation.
The World Bank has lowered its GDP growth estimate for China in 2024 due to elevated debt and weakness in the property sector, which has been hit by a downturn leading to unfinished homes and a decline in housing prices. While the impact on the overall economy may be limited, smaller regional banks and local government financing vehicles (LGFVs) are at higher risk. Policymakers have signaled a shift in their approach to the property market, and the long-term prospects of the sector may be hindered by demographic factors and a high rate of home ownership. However, experts believe that real estate will remain an important industry in the future.
China's recent package of relief measures to boost the struggling property market has not yet had a significant impact on homebuyer confidence, leading experts to suggest that more stimulus policies may be needed to revive the market. Despite the government's efforts to lower mortgage rates and reduce down payments, weak sales data and further price declines are expected.
Top real estate and banking officials are urging the Federal Reserve to stop raising interest rates due to surging housing costs and a "historic shortage" of available homes, expressing concern about the impact on the real estate market.
Chinese property giant Country Garden Holdings is facing financial difficulties, as it missed a loan repayment and warned that it may not be able to repay all of its creditors, amid a struggling property market and a massive debt burden. Experts believe that the knock-on effects of a property bust in China, a market as big as China's, will have remarkable consequences and hinder the country's economic growth. The government is expected to provide some stimulus, but there are doubts about its effectiveness in addressing the underlying structural issues in the Chinese economy.
