China on monetary easing efforts to rebuild the Chinese economy

On Friday, China ramped up its efforts to support the economy by paving the door for additional rate cuts and lowering the amount of money that institutions must keep in foreign exchange reserves.

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China is struggling with a slowdown that has alarmed global markets, and the problematic developer Country Garden's escalating debt problems in a sector that makes up about a fifth of the GDP in china's economy, is receiving a lot of attention right now.

Policies adopted to revive Economy

As pressure grows, Chinese authorities have implemented a number of policies to boost the economy and resurrect the crisis-damaged real estate market. These policies include loosening some borrowing restrictions and reducing the amount of foreign currency reserves that banks are required to maintain.

In order to provide bondholders "sufficient time" to prepare for the vote, Country Garden postponed the deadline for creditors to vote on whether to suspend payments on an onshore 3.9 billion yuan ($537 million) private bond until Friday at 1400GMT.

One holder of Country Garden's dollar bonds claims that if the company cannot extend its domestic debt, it will not be able to serve external bondholders. The vote is a significant obstacle Country Garden must overcome in order to avoid default.

"Slow-moving car crash"

The bondholder, who requested anonymity due to the sensitive nature of the subject, described the situation as a "slow-moving car crash," and added that his main worries were the general economy's unpredictability and the ongoing tensions with Washington.

Concern about Beijing's capacity to implement supportive measures has grown as a result of the real estate market's stress, which has also increased pressure on Beijing to do so.

Property prices in China continues to decline

According to a private survey released on Friday, China's new home prices declined for the fourth consecutive month in August as the property debt crisis left confidence at low levels despite the stringent support measures.

The central bank announced on Friday that, starting on September 15, it would reduce the foreign exchange reserve requirement ratio (RRR) by 200 basis points (bps), from 6% to 4%.

According to websites from each bank, Industrial and Commercial Bank of China (601398.SS), China Construction Bank Corp (601939.SS), and Agricultural Bank of China (601288.SS) were among the lenders decreasing mortgage rates on Friday. They each reduced their deposit rates by five to 25 basis points

The market's confidence was boosted by the measures, which led to a rally in battered property equities, with China's CSI 300 Real Estate Index rising 2.4% in afternoon trade.

Reduction of Home Loan Rates

As part of Beijing's efforts to revive the housing market, which has been negatively impacted by the debt crisis, major state banks will soon prepare to slash interest rates on current mortgages, according to three sources familiar with the situation who spoke to Reuters on Tuesday.

According to a Thursday announcement from China's central bank and financial regulator, first-time homebuyers with mortgages can apply to their banks for a lower interest rate on their current loans as of September 25.

This week, Guangzhou and Shenzhen, two of the largest cities in China, also loosened mortgage restrictions, extending the eligibility criteria for first-time homebuyers to qualify for preferential loans.

The lenders reduced rates on time deposits for one year by 10 basis points (bps) to 1.55%, two years by 20 bps, three years by 25 bps, and five years by 25 bps. The reductions in deposit rates are the third in a year, and they are more substantial than the reductions made in June and September of the previous year.

According to Nicholas Zhu, a banking analyst at Moody's, lower deposit rates will somewhat offset different pressures on banks' falling net interest margins, a crucial indicator of profitability.

Given that deposits account for about three-quarters of Chinese banks' liabilities, Zhu added, "the impact of the deposit rate cut is material."

Additionally, a number of China's mid-sized banks, including Industrial Bank Co Ltd (601166.SS) and China Bohai Bank Co Ltd (9668.HK), declared they will begin reducing interest rates on a variety of deposits from this Friday by 10 to 25 basis points.

At the end of June, China's mortgage loans totaled 38.6 trillion yuan ($5.29 trillion), making up 17% of all loans in the country's banks.

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