China Increases Economic Support in Country Garden Vote

  • China’s five biggest banks cut interest rates
  • Vote at the developer’s Country Garden on Friday
  • The central bank reduces the amount foreign exchange banks are required to hold as reserves
  • Beijing to take more action to revive property sector – sources
  • The move is part of a broader set of measures to boost the economy

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

As part of the support measures, Chinese authorities also reduced the amount of funds companies must hold in foreign exchange reserves. The moves cheered investors and should prevent further declines in the struggling property sector, analysts said.

China is grappling with a slowdown that has rocked global markets, focusing on the spiraling debt crisis of troubled developer Country Garden ( 2007.HK ) in a sector that contributes a quarter of the economy.

As pressure mounts, authorities have taken a series of measures to stimulate the economy and revive the property market, with measures including easing some borrowing rules and reducing the amount of foreign exchange banks must hold in reserves.

The country is poised to take further steps, including easing restrictions on home purchases, four people familiar with the matter said.

Regulators, including the housing ministry, the central bank and the financial regulator, will implement the measures they have been working on for the past few months under the guidance of the State Council in the coming weeks, the two said.

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Betty Wang, ANZ’s senior China economist, said a number of nationwide asset easing measures in the past two weeks had exceeded market expectations.

“This is the first time China has announced nationwide asset easing measures since 2021. They will help restore market confidence and prevent the sector from further declining.”

Country Garden Test

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

On Thursday, Country Garden delayed the deadline to vote on whether to postpone payments on a 3.9 billion yuan ($537 million) private bond to 1400GMT on Friday to give creditors “sufficient time” to prepare for the vote.

The vote is a key hurdle as the developer’s dollar-denominated bondholders struggle to avoid default, saying the company cannot service its foreign bondholders if it can’t extend its domestic debt.

“It’s a slow-moving car crash,” said the bondholder, who declined to be identified because of the sensitivity of the issue, focusing on uncertainty about the broader economy and tensions with Washington.

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

Coins and banknotes of China’s yuan are seen in this illustration taken on February 24, 2022. REUTERS/Florence Lo/Illustration/File Photo Get license rights

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

The pressure on property markets has intensified pressure on Beijing to implement support measures and fueled concerns about policymakers’ ability to stem a slowdown in China’s broader economic growth.

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China’s new home prices fell for a fourth straight month in August, according to a private survey on Friday, as a property credit crunch kept confidence low despite string of support measures.

Reduction in deposit rates

Sep. The central bank on Friday said it would cut the foreign exchange reserve requirement ratio (RRR) by 200 basis points (bps) from 6 percent to 4 percent from 15, aiming to slow the yuan’s decline.

Lenders that cut mortgage rates on Friday included Industrial and Commercial Bank of China ( 601398.SS ), China Construction Bank Corp ( 601939.SS ) and Agricultural Bank of China ( 601288.SS ). Basic points, websites from each bank were shown. Several mid-sized banks also announced that they will start cutting interest rates on deposits by 10-25 basis points.

The moves helped boost confidence in the market and rallied struggling property stocks, with China’s CSI 300 real estate index (.CSI000952) up 2.4% in afternoon trade.

Three sources familiar with the matter told Reuters on Tuesday that major state-owned banks are poised to cut interest rates on existing mortgages sooner rather than later to cut deposit rates.

Sep. From 25, first-time home buyers with mortgages can apply to their banks for lower interest rates on existing loans, China’s central bank and financial regulator announced on Thursday.

The deposit rate cuts are the third such cuts in a year, with larger cuts than the previous rounds in June and September last year.

Lower deposit rates will partially offset various pressures on banks’ shrinking net interest margins – a key measure of profitability, Moody’s Bank analyst Nicholas Zhu said.

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“The impact of the deposit rate cut is significant, as three-quarters of Chinese banks’ loans are deposits,” Zhu said.

China’s mortgage loans totaled 38.6 trillion yuan ($5.29 trillion) at the end of June, accounting for 17% of banks’ total loan books.

($1 = 7.2633 Chinese Yuan Renminbi)

Reporting by Ziyi Tang, Ryan Woo and Wang Jing, additional reporting by Davide Barbuscia in New York; Edited by Ann Marie Rowntree and Lincoln Feast

Our Standards: Thomson Reuters Trust Principles.

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