China cuts deposit rates and forex reserves to boost economy
China is facing a slowdown that has rattled global markets, with the spotlight now firmly focused on the troubled developer Country Garden’s spiraling debt crisis in a sector that contributes to roughly a quarter of the economy. As pressure mounts, Chinese authorities have rolled out a series of measures to shore up the country’s faltering economy and revive the crisis-hit property market.
On Friday, five of China’s biggest banks cut interest rates on a range of deposits in a coordinated effort to ease pressure on their shrinking margins. The lenders lowering mortgage rates included Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China, which cut their deposit rates by between five and 25 basis points, websites from each bank showed.
The central bank also said on Friday it would cut the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% from 6% beginning Sept. 15, a move seen aimed at slowing the pace of yuan declines. The RRR is the amount of money that banks must hold as reserves at the central bank. By lowering the RRR, the central bank frees up more funds for banks to lend and support economic activity.
Country Garden seeks bond payment extension amid debt crisis
The measures helped lift confidence in the market and battered property stocks rallied, with China’s CSI 300 Real Estate Index up 2.4% in afternoon trade. However, the property sector still faces significant challenges as many developers struggle to repay their debts amid tighter regulations and lower sales.
One of the most prominent cases is Country Garden, China’s largest private developer by sales, which has been trying to avoid default on its massive debt obligations. The company has delayed a deadline for creditors to vote on whether to postpone payments for an onshore 3.9 billion yuan ($537 million) private bond until Friday 1400GMT to give bondholders “sufficient time” to prepare for the vote.
The vote is a key hurdle Country Garden faces as it strives to avoid default, with one holder of the developer’s dollar bonds saying if the company cannot extend its domestic debt, it will be unable to service external bondholders. “This has been a slow-moving car crash,” said the bondholder, who declined to be identified due to the sensitivity of the issue, adding that concerns centered around uncertainty over the broader economy and tensions with Washington. “Everything they do right now is going to have an impact five to 10 years down the line.”
Country Garden did not immediately respond to Reuters request for comment.
China’s new home prices fall for fourth month in August
Stress in the property market has intensified pressure on Beijing to implement supporting measures and fanned concern about the ability of policymakers to arrest a decline in China’s broader economic growth. China’s new home prices fell for the fourth month in August, according to a private survey on Friday, as the property debt crisis kept confidence at a low ebb despite the string support measures.
The average new home price in 100 major cities fell 0.3% in August from a month earlier, following a 0.4% drop in July, according to data from China Index Academy, one of the country’s largest independent real estate research firms. On an annual basis, new home prices rose 2.7% in August, slowing from July’s 3.1% increase.
The survey also showed that new home prices fell in 64 of the 100 cities monitored by China Index Academy last month, up from 60 in July. The number of cities that saw price increases dropped to 34 from 38 in July.
The weak data underscored the challenges facing China’s property market, which has been hit by tighter credit conditions and regulatory curbs aimed at curbing speculation and preventing bubbles. The slowdown in the sector has also weighed on consumer sentiment and spending, adding to the headwinds for the world’s second-largest economy.
