China cuts interest rates

 

China cuts interest rates as economic growth slows

China has unexpectedly cut a key interest rate for the first time in almost two years as official figures showed its economic growth had slowed.

Gross domestic product (GDP) grew by 4% for the last three months of 2021 from a year earlier, the National Bureau of Statistics said.

That was better than most economists had predicted but were a lot slower than the previous quarter.

In another sign of weakness, retail sales growth for December fell to 1.7%.

For the year as a whole, official data showed that China's economy grew by 8.1%, which beat economists' forecasts and came in well above Beijing's annual target of "over 6%."

However, some economists highlighted that the growth data, which was the slowest in a year and a half, has yet to take into account the effect of the latest coronavirus outbreaks many business listings.

"The GDP figure didn't reflect the impact of the domestic spread of the omicron variant since late December which will hit the service industry significantly, especially offline consumption and transportation, Yue Su from the Economist Intelligence Unit said.

To help boost the economy the People's Bank of China (PBOC) said it was lowering the interest rate on 700bn yuan (£80.6bn; $110bn) worth of one-year medium-term lending facility loans to 2.85%. It was the first such cut since April 2020.

Another PBOC lending measure, the seven-day reverse repurchase rate, was also cut, while the bank pumped another 200bn yuan of medium-term cash into the financial system.

The moves put China further apart from other major central banks around the world.

The US Federal Reserve has signaled that it plans to increase its interest rate three times this year.

While in the UK, the Bank of England raised the interest rates last month for the first time in more than three years, in response to calls to tackle surging price rises.

China's economic outlook has been clouded by growing concerns about the effects of Beijing's regulatory crackdown on businesses, the financial health of some of the country's biggest property firms, and the spread of the Omicron variant of Covid-19.

China's economy grew by an impressive 8.1% last year but the country was in the middle of pandemic lockdowns in 2020 so that is coming off a low base.

And when you look at the latest data closely, there are two worrying signs.

The country's property sector is attracting less investment as some of its biggest developers face a debt crisis.

The industry's slowdown was triggered by Beijing's measures to limit the amount of money some real estate firms could borrow so does not come as too much of a surprise. But a sharp contraction could affect the country's overall economic growth as the sector accounts for about a quarter of its GDP.

Consumers also seem to be feeling less optimistic, with retail sales coming in much weaker than expected. China's strict zero Covid policy has meant that some major cities started to go back into lockdown last month due to the Omicron variant. We have yet to see the full impact of that.

To help cushion the slowdown, the country's central bank has for the first time in almost two years taken the unexpected step of making some key loans for businesses cheaper.

While that may seem to be a loosening of President Xi's "common prosperity" policies to curb corporate debt, it seems unlikely that Beijing will go much further to support big businesses and their billionaire owners.

The government is also unlikely to ditch its zero Covid policy ahead of next month's Winter Olympics and a Communist party meeting later this year where President Xi is expected to tighten his grip on the world's second-largest economy with a third term in power business listings.

More on this story

·         Evergrande moves from head office to cut costs

·         Is China luring poorer countries into debt?

·         How China's crackdowns are impacting business

Related Topics

·  China

· GDP

· Asia economy

·  Coronavirus pandemic

Evergrande: Real estate giant moves from Shenzhen head office to cut costs

 

Evergrande's logo was seen being removed from the firm's headquarters in Shenzhen, China

Cash-strapped Chinese real estate giant Evergrande has moved out of its Shenzhen headquarters to cut costs.

Evergrande said it had moved to a property that it owns, but that it was still in the same city.

It comes as its rival Shimao Group said on Tuesday it is in talks with potential buyers for some properties as it tries to reduce its debts.

The firms have come under intense pressure in the last six months after Beijing moved to curb their borrowing free business listings.

China's property crisis is estimated to have wiped more than a trillion dollars off the value of the sector last year.

·How China is trying to limit the Evergrande crisis

·How China's crackdowns are impacting business

Evergrande, the world's most indebted property developer, is struggling to make payments on its more than $300bn (£220bn) of liabilities and has missed payments on its offshore debt.

"In order to save costs, the company has gone through the lease cancellation procedures for Houhai Excellence Center in December 2021 and moved to its own property in Shenzhen," Ever Grande said in a statement on its website.

"The company's registered place has not changed and is still in Shenzhen," it added.

In September, the building was the scene of protests by Evergrande investors who crowded its lobby to demand repayment of loans and financial products.

Evergrande's logo was seen being removed from the skyscraper's facade on Monday.

However, it kept hopes alive that it could avoid defaulting for the first time on its onshore yuan bonds.

That came as it extended until Thursday a deadline for bondholders to agree to a six-month deferral on a $706m payment.

Evergrande's Hong Kong-listed shares have lost almost 90% of their value in the last year as investors became increasingly concerned that it could be close to collapse.

Separately on Tuesday, real estate company Shimao denied a media report that it had entered into a preliminary agreement to sell one of its prime properties, the Shanghai Shimao International Plaza.

But the company did say in the statement to the Hong Kong Stock Exchange that it was "in discussions with certain potential purchasers and may consider disposing of certain properties if the terms and conditions are appropriate in order to reduce the indebtedness of the Group".

Shimano's shares were trading slightly lower on Tuesday, after surging by almost 20% the previous day.

China's lending for construction projects around the world has proved controversial