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China Unveils Broad Stimulus Measures to Revive Economy

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China’s central bank announced wide-ranging monetary stimulus and property market measures on Tuesday, aiming to revive an economy facing deflationary pressures and at risk of missing its growth target for the year. The People’s Bank of China (PBOC) revealed plans to lower borrowing costs, increase liquidity, and ease the burden of mortgage repayments for households, marking the latest attempt to restore confidence in the world’s second-largest economy after months of disappointing economic data.

Stocks and bonds in China rallied as Governor Pan Gongsheng outlined the measures, which include cutting banks’ reserve requirement ratios (RRR) by 50 basis points (bps). This move will free up around 1 trillion yuan ($141.93 billion) for new lending, though credit demand remains weak. The PBOC will also lower the seven-day repo rate by 0.2 percentage points to 1.5%, and reduce the medium-term lending facility rate by 30 basis points. Loan prime rates will also see a 20-25 bps cut.

The property market, a major driver of China’s economy, received further support with a 50 bps reduction in average interest rates for existing mortgages and a reduction in the minimum down payment to 15% for all types of homes. China’s property market has been in decline since its peak in 2021, and the crisis has heavily impacted consumer confidence, with 70% of household savings tied to real estate.

Despite earlier efforts to lower mortgage rates and downpayment requirements, demand for homes remains weak, and prices continue to fall. August’s economic data missed expectations, adding urgency to the stimulus package. Analysts warn, however, that these measures may not be sufficient to fully restore growth unless complemented by stronger fiscal policies.

Local governments have accelerated bond issuance to fund infrastructure projects, and analysts expect further support measures in the coming weeks as China aims to meet its roughly 5% growth target for the year. The recent U.S. Federal Reserve rate cut has provided room for the PBOC to ease its own monetary policies without putting too much pressure on the yuan.

Analysts, including those from investment banks such as Goldman Sachs and UBS, have already downgraded their growth forecasts for 2024, but they see Tuesday’s measures as a positive step towards economic recovery. ING’s Chief Economist for Greater China, Lynn Song, believes there is potential for further easing in the coming months, especially if global central banks continue cutting rates.

 

China’s Youth Grapple with Unemployment, Giving Rise to ‘Rotten-Tail Kids’

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China’s growing youth unemployment crisis has led to the emergence of a new working class, dubbed “rotten-tail kids,” a term echoing the unfinished and deteriorating buildings that symbolize the country’s troubled economy. Faced with a stagnant labor market and diminished job prospects, millions of college graduates are forced to accept low-wage work or rely on their parents’ pensions to survive.

The crisis has escalated since the COVID-19 pandemic, compounded by government crackdowns on the tech, finance, and education sectors. A record 11.79 million college students graduated in 2023, contributing to a youth unemployment rate that hit an unprecedented 21.3% in June of that year. In response, Chinese authorities suspended the release of unemployment data, later revising it to 17.1% by July 2024. Despite efforts by President Xi Jinping to prioritize job creation for young people, the challenge remains immense. Initiatives like job fairs and business support policies have been introduced, yet many young Chinese are unable to find stable employment.

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For many, a college degree once symbolized upward social mobility and a brighter future, but those promises have faded. With an oversupply of graduates, even those with post-graduate degrees struggle to secure work in a sluggish economy. Some have resigned themselves to becoming “full-time children,” living at home and relying on their parents’ financial support. Others, disillusioned by low-paying jobs or exploitative work conditions, contemplate shifting career paths entirely, like recent graduate Amada Chen, who left her sales job due to unbearable work culture and unrealistic expectations. Chen, after applying for over 130 jobs, is now considering modeling as an alternative to her degree in traditional Chinese medicine.

This economic dilemma is not new in China. Since the late 1990s, China has expanded its university system to create a highly educated workforce, but the supply of graduates continues to outpace job availability. While some like Zephyr Cao, a master’s graduate, remain optimistic about pursuing further education to improve their chances, others like AI student Shou Chen, who has struggled to secure even an internship, express deep pessimism about their future in a saturated job market.

The outlook remains uncertain as China braces for a long-term mismatch between graduates and job demand. While the fertility rate decline is expected to slow this trend by the mid-2030s, the current generation of young people must navigate a job market that is unlikely to meet their expectations anytime soon.