What's going on?
China cut a key interest rate by a record amount in a bid to boost its struggling economy.
What does this mean?
China’s property slump and the government’s zero-Covid policy have left the country’s economy black and blue, with consumer spending and industrial output last month plunging to their lowest levels since the pandemic began. That’s left the country scratching its head as to how to mitigate the slowdown, and it seems to have hit upon a solution: it just announced a record cut to a key interest rate that underpins mortgage lending from 4.6% to 4.45%. The lower rate – which will be applied to new mortgages immediately and existing mortgages next year – is a significant move to boost demand for loans and prop up the country’s all-important property sector, which makes up around a quarter of the Chinese economy.
Why should I care?
The bigger picture: China has plenty in the tank.
China is under a lot of pressure to meet its own growth target of about 5.5% this year – a goal that’s looking increasingly unachievable as it keeps up its stubborn fight to eliminate Covid. But you can’t fault its chutzpah: Bloomberg estimates that the country will pump $5.3 trillion into its economy this year, in the form of government spending, interest rate cuts, and more. That figure equates to roughly a third of China’s economy, and it’s not even its upper limit: the country spent more on itself in 2020, suggesting it can raise the stakes even more if it needs to.
Zooming out: China and America could do a switcheroo.
China might believe its growth target is still achievable, but economists at Bloomberg certainly don’t: they’re convinced China’s economy will grow just 2% this year, compared to the US’s 2.8%. If they’re right about that, it’ll be the first time since 1976 that China’s economic growth undershoots America’s.