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Explore China's latest macroeconomic trends and forecasts to inform business strategy and pinpoint opportunities and risks

China Cuts Interest Rates to Prop up Sagging Economy

China’s central bank unexpectedly cut its key interest rates as it struggles to support an economy weighed down by COVID-19 lockdowns and a deepening downturn in the property market
Bond yields plummeted after the People’s Bank of China cut the interest rate on its one-year policy loans by 10 basis points to 2.75% and the rate on its seven-day reverse repo to 2% from 2.1%
On August 15, 2022, the central bank added CNY400 billion ($59.3 billion) in liquidity through the one-year MLF and CNY2 billion through seven-day reverse repos

China’s central bank unexpectedly reduced the key interest rate for the second time in 2022 and withdrew some cash from the banking system on August 15, 2022, to augment credit demand and strengthen the economy affected by the COVID-19 pandemic. The rate on CNY400 billion ($59.33 billion) in one-year medium-term lending facility (MLF) loans to some financial institutions will decrease by 10 basis points (bps) to 2.75% from 2.85%, according to the People’s Bank of China (PBOC).

Slowdown in GDP Growth

The National Bureau of Statistics of China said on August 15, 2022, that industrial production increased 3.8% YoY in July 2022, slowing from a 3.9% gain in June 2022. Limited results from a planned infrastructure push could be due to the lack of ready-to-go projects and financial restrictions on the local governments tasked with delivering it. Furthermore, the possibility of recurrent bans and reopening made it difficult to maintain any hard-won economic gains due to the country’s commitment to the ‘COVID Zero’ policy.

Housing Crisis in China

The repercussions of Beijing’s zero-tolerance policy to the pandemic and a falling real estate market are subjecting the world’s second-largest economy to enormous strain, leading to protests and mortgage payment strikes in various regions and cities. The real estate sector was already experiencing a protracted decrease in prices and a liquidity issue that affected some of the biggest developers in the country. The economy is under pressure from the real estate industry, which makes a substantial contribution to China’s GDP. Homebuyers across the country threatened to stop making mortgage payments on unfinished homes, jolting the market and forcing developers and regulators to intervene to defuse the situation.

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