China has been stepping up its efforts to revive the economy and improve the overall business environment in the country, as concerns in regards to the growth outlook continue to mount. Kavan Choksi Professional Investor mentions that a number of pledges have been made by authorities in China that target particular sectors, or are aimed at reassuring private and foreign investors of a more favorable investment environment.
Kavan Choksi Professional Investortalks about the slew of measures undertaken by China to bolster its economy
Stamp duty on stock trades was lowered in China by half on 28th August 2023. This marked the first cut to the duty since 2008, and was intended to bolster the equities market amid an intensifying selloff. The securities watchdog of the country also pledged to slow down the pace of initial public offerings, as well as restrict both the size and frequency of refinancing for certain poorly-performing companies. Officials had also asked certain mutual funds to avoid becoming net sellers of equities, while also encouraging the companies listed on the science and technology board of Shanghai to buy back their shares, among various other measures.
The central bank of China also escalated its defense of the yuan by not only pushing up funding costs in the offshore market, but also by setting stronger daily fixings, in order to curb the decline of the currency. This move came after the Communist Party’s Politburo vowed to keep the yuan’s exchange rate “basically stable at an equilibrium level” and “invigorate the capital markets”. Politburo is a top decision-making body in China.
As Kavan Choksi Professional Investor mentioned, the People’s Bank of China cut its main policy interest rate by the most since 2020 on August 15th 2023. This was the second reduction this year. The move came just a while after the release of July data that showed rising unemployment, sliding investments and weak consumer spending growth. This cut set the stage for greater fiscal support. However, Chinese banks later kept a key interest rate that guides mortgages on hold. This underlined the confusion faced by Beijing as it strives to improve borrowing by lowering rates, but also preserve financial stability.
On the August of 2023, authorities in China essentially proposed that the local governments could scrap the rule that disqualified people who have ever had a mortgage, even if it was fully repaid, from being considered a first-time homebuyers in major cities. The government left it up to local officials on whether they want to adopt the policy or not. Hence, the effectiveness of the measure would be largely be impacted by if the main districts in top-tier cities adopt the policy.
At a State Council meeting chaired by Premier Li Qiang, the cabinet of China called out cities to roll out measures that are “conducive to the healthy development” of their property markets as per their own needs. The officials also urged the efforts to increase the research and construction of a brand new industry development model. Renovation of so-called urban villages is also been planned by the government. More private capital is likely to be sought out for projects, in order to push forward the development of cities and expand the domestic demand.