China is intensifying its efforts to support its economy in various ways as the Communist Party gets ready to celebrate the 75th anniversary of the founding of the People’s Republic. Reports have surfaced indicating that the government is planning to inject around 1 trillion yuan (equivalent to $142 billion) into six major state-owned banks to recapitalize them. This decision follows a statement earlier in the week by Li Yunze, the head of the National Financial Regulatory Commission, affirming the regulators’ intention to increase the capital of these large banks to address challenges faced by the banking sector due to defaults by real estate developers after a crackdown on excessive borrowing for property projects.
President Xi Jinping and other top leaders recently convened a quarterly meeting on the economy where they acknowledged the emergence of new challenges. They pledged to concentrate on supporting various groups such as new college graduates, migrant workers, the unemployed, elderly, and disabled individuals. This move is part of a series of measures aimed at revitalizing the Chinese economy, as the country continues to recover from the impacts of the COVID-19 pandemic. Financial markets responded positively for the second time this week to the government’s stimulus efforts with Hong Kong’s Hang Seng index rising by 4.2% and the Shanghai Composite index surging by 3.6%. Other markets in Asia and Europe also experienced significant gains.
The recent initiatives to boost economic growth began with announcements on various measures to revive the struggling property sector and bolster financial markets earlier in the week, which included reductions in bank reserve requirements, interest rates, and minimum down payments for some mortgages. Following a meeting of the ruling party’s Politburo, plans for additional policies to tackle new issues were revealed. However, the specifics of the large-scale fiscal support needed to stabilize growth remain uncertain.
With the upcoming National Day holiday, the government aims to instill confidence in the economy by taking proactive steps. In line with this, special cash handouts or “living allowances” for the poor were announced ahead of the observances. This move, while uncommon, reflects the Communist Party’s occasional practice of providing financial aid to families facing difficulties during significant occasions. The government’s message after the Politburo meeting emphasized the importance of thoroughly assessing the economic landscape, confronting challenges, building confidence, and acting with a sense of responsibility and urgency to advance economic efforts.