China's Central Bank lowers key interest rates due to weak growth
The Chinese Central Bank has lowered two important benchmark interest rates to boost the sluggish economy in the country. According to the central bank's announcement, the benchmark interest rate for the most favorable deposits that banks can offer to businesses, households, and other financial institutions will decrease from 3.45 to 3.35 percent; the benchmark interest rate for mortgage loans will decrease from 3.95 to 3.85 percent. In both cases, this marks the lowest interest rate levels ever.
The Chinese economy is suffering from an unprecedented crisis in the real estate sector. At the same time, domestic consumption has not recovered sustainably since the Corona pandemic, and youth unemployment is high. Geopolitical tensions, particularly with the US and increasingly also with the European Union, are putting pressure on foreign trade.
The interest rate cut was expected after disappointing economic growth in the second quarter, which came in at 4.7 percent, down from 5.3 percent in the first quarter. New retail sales data for June confirmed the poor consumer sentiment.
Last week, the Chinese government hinted at solutions for central economic problems, including the real estate sector, at a Communist Party conference without providing specifics. The construction industry was long considered a major growth driver. However, the construction boom of the past decades was largely driven by speculation. Many large real estate companies are now facing bankruptcy, projects are not being completed, and prices are plummeting.
The construction crisis is now having a significant impact on the financial situation of local governments. According to official figures, they are sitting on a debt mountain of around 5.6 trillion dollars, causing concern about the overall financial stability of the country. The party conference last week also agreed to take targeted action in this area without elaborating.
Worry over the financial stability of local governments due to the construction crisis has increased, as they face mounting debts estimated at LeitzinSizes of approximately 5.6 trillion dollars. With China's Central Bank lowering interest rates to boost economic growth, there's hope that this stability might be restored. However, the real estate sector's unprecedented crisis, exacerbated by high youth unemployment and geopolitical tensions, continues to pose a significant worry for the stability of China's economy.
