China uses strong measures to 'unblock' the economy

In order to support the economy, the People's Bank of China (PBOC), which acts as the country's central bank, has just announced a reduction in the medium-term lending facility (MLF) operating rate from 3.35% to 3.1%, and the five-year lending reference rate (LPR) from 3.85% to 3.6%.

Low consumption makes China's economy face difficulties

A series of strong measures

It is China's latest effort to boost its sluggish economy.

Before lowering the medium- and long-term operating interest rates, China also cut the short-term operating interest rates at the end of September. Specifically, on September 23, the PBOC reduced the 14-day repurchase agreement (repo) interest rate by another 10 basis points, from 1.95% to 1.85%. Repo is a form of short-term financial transaction (one party will mortgage assets to borrow from the other party in the short term and the collateral is usually financial products). Along with that, the PBOC also used this tool to inject 74.5 billion yuan (about 10.6 billion USD) into the economy.

In addition to cutting the policy interest rate, China is also looking to revive the "stagnant" real estate market - an important cause of the country's economic slowdown. Also at the end of September, China cut the current mortgage interest rate and the reserve requirement ratio by 0.5 percentage points. According to the country's financial industry leaders, the current mortgage interest rate cut is expected to benefit 50 million households - equivalent to 150 million people, reducing the average household interest expense by about 150 billion yuan per year, contributing to boosting consumption and investment.

Not stopping there, last week, financial regulators announced that by the end of this year, they will double the preferential loan package to 4,000 billion yuan (more than 560 billion USD) to finance "qualified" real estate projects. In addition, the Ministry of Housing and Urban-Rural Development of China announced that it will rebuild 1 million apartments as part of its efforts to renovate urban areas and improve housing for people.

Difficulties piled up

China has added to its stimulus package after the latest data showed a worsening slowdown. Also last week, official figures showed the world's second-largest economy grew 4.6% in the third quarter of 2024, down from 4.7% in the second quarter. The slowdown was attributed to weak domestic demand, a struggling housing market and slowing export growth amid global headwinds.

According to an assessment sent to Thanh Nien , Moody's Analytics said that China is facing difficulties in exporting when facing barriers from the US and Europe. However, domestic demand is not growing to compensate, because consumption has not improved and the real estate market is still stagnant.

Similarly, the credit rating agency Standard & Poor's (S&P) in early October assessed that despite China's measures to stimulate consumption and the real estate market, the difficulties have not stopped. Accordingly, China's real estate market continues to stagnate and is likely to continue to decline until 2025. This tightens the downstream supply chain, such as building materials, goods, metals (especially steel) ... serving the construction industry. The stagnant real estate market along with the gloomy employment outlook causes consumption to decline.

In addition, the Middle East war is heating up and there are many risks of outbreaks that could lead to restrictions on crude oil shipments through the Strait of Hormuz, causing world oil prices to rise. At the same time, this is an important source of energy supply for China. These factors could cause inflation to rise again in China. The above risks not only make the consumption of the world's second largest economy more stagnant, but also lead to the risk of reversing the monetary easing policy.

Based on the current state of the Chinese economy, some economic experts in this country believe that perhaps a stimulus package worth up to 12,000 billion yuan (about 1,700 billion USD) is needed to solve the difficulties.

China's youth unemployment rate falls

International airlines reduce flights to China

According to the South China Morning Post , international airlines are reducing the number of flights to China from October. One reason for this move is that Chinese airlines have gained an advantage over their European rivals by flying via Russia to Europe. Another important reason is that traffic between China and other countries has also decreased due to the slowdown of the Chinese economy.

It is expected that from October 26, the UK-based airline Virgin Atlantic will stop its London - Shanghai route after 25 years of operation. British Airways (UK) is also about to suspend its London - Beijing flights from October 26. And from November 8, Scandinavian Airlines (Sweden) will stop flying the Copenhagen - Shanghai route, Qantas Airways (Australia) has abandoned the Sydney - Shanghai route. German airline Lufthansa is considering stopping its Frankfurt - Beijing route. Meanwhile, Delta Air Lines (US) has postponed its plan to resume flights to Shanghai - Los Angeles.

Source: https://thanhnien.vn/trung-quoc-dung-bien-phap-manh-de-giai-vay-nen-kinh-te-185241022204646449.htm