China launches massive easing measures to try to stem the bleeding of its economy hit by the trade war

People's Bank Announces Interest Rate Cut, Reserve Ratio Reduction, and Launches Trillion-Yuan Loan Tool, Demonstrating Strong Economic Stimulus Determination

As the China-US trade war intensifies and economic growth pressure increases, the Chinese government has finally taken action to rescue the market. The People's Bank of China and financial regulators held a press conference on Wednesday, announcing a series of easing measures, including interest rate cuts, lowering bank reserve ratios, and launching liquidity and financing support tools worth over 1.5 trillion yuan, aiming to revive weak domestic demand and market confidence.

Interest Rate Cut and Reserve Ratio Reduction Simultaneously Release Over 1 Trillion Yuan Market Liquidity

People's Bank Governor Pan Gongsheng announced that the seven-day reverse repurchase rate will be lowered by 10 basis points, from 1.5% to 1.4%. This adjustment is expected to simultaneously drive down the Loan Prime Rate (LPR), further reducing financing costs for enterprises and individuals.

Meanwhile, the central bank has decided to lower the deposit reserve ratio (RRR) for financial institutions by 50 basis points, estimated to release about 1 trillion yuan (approximately 138.6 billion US dollars) of liquidity, further supporting bank lending and market fund supply.

Focus on Key Industries, Support Innovation and Real Estate Financing

In addition to monetary easing tools, the authorities have simultaneously announced a series of industry support measures, including strengthening financing support for key areas such as technology and real estate. China will establish a 500 billion yuan re-lending tool specifically aimed at promoting the development of consumption and elderly care industries, indicating that the government is accelerating the deployment of a new round of economic transformation and domestic demand stimulus.

Housing Market and Auto Loans Get Additional Relief, Housing Provident Fund Loan Rates Lowered

Against the backdrop of continued pressure on the real estate market, the central bank has also announced a 25 basis point reduction in housing provident fund loan rates. The five-year first home loan rate will drop from 2.85% to 2.6%, easing the repayment burden for first-time homebuyers. Additionally, the required reserve ratio for auto finance companies will gradually be reduced from the current 5% to 0%, providing additional liquidity support for auto consumption.

New Measures for Small and Medium Enterprises and Private Sector Imminent

Financial Supervisory Authority Director Li Yunze pointed out that additional support measures for small and medium-sized enterprises and private enterprises will soon be announced. This indicates that Beijing authorities are accelerating the shift from "point-based stimulus" to "systematic bottom-up support" to ensure that the real economy, especially the main employment sectors, are not overwhelmed by macroeconomic pressures.

China-US High-Level Talks Resume, Trade War May See a Turning Point

Notably, just hours before this press conference, Chinese officials confirmed that Vice Premier He Lifeng will meet with US Treasury Secretary Bessen in Switzerland later this week to discuss tariffs and trade matters. This will be the first formal talks since US President Trump announced a massive increase of tariffs on Chinese goods to 145%.

In retaliation, China is also preparing to impose retaliatory tariffs of up to 125% on US imported goods, further escalating the China-US trade war. The international community is widely concerned whether this high-level dialogue can thaw the tense relationship and bring a glimmer of hope to the economy and markets.

Analyst: Policy Tools Still Have Room, Further Rate Cuts Possible

ING's Chief Economist for Greater China stated that policymakers may have already grasped some preliminary economic data showing that trade impacts have begun to affect the economy. He expects that China may further cut interest rates by 20 basis points this year and lower the reserve requirement ratio by 50 basis points again. However, the next step may have to wait until the Federal Reserve begins to cut rates.