Why it matters
A reduction in the deposit rate is a lever that policymakers can use to boost spending. The hope is that the lower rates will give consumers an incentive to spend or invest money instead of parking their savings in the bank.
The move is an indication that consumer spending, a key driver of economic growth, remains low. After China lifted its Covid restrictions and reopened its economy late last year, pent-up demand was expected to drive consumers to splurge – but that has not materialized in many sectors of the economy.
Larry Hu, China chief economist at the financial firm Macquarie Group, said the deposit rate change “paves the way for more easing measures”. He added that the People’s Bank of China, the country’s central bank, could cut lending rates or take other steps to stimulate the economy in the coming months. Reducing the amount banks pay out on deposits could offset some of the financial strain when China’s central bank cuts lending rates, he said.
Background
China has forecast that its economy will recover from one of the slowest years of growth in decades last year and that its gross domestic product will grow by about 5 percent in 2023. But the economic weakness persists.
In the first three months of the year, China’s economy grew 4.5 percent, aided by rising spending on dining out and luxury goods. But the prospects seem less promising. China’s second-quarter gross domestic product figures are expected to be released next month.
Youth unemployment is at a record high. The real estate market, a critical sector of the economy for investment and job creation, continues to slump and there are few signs of recovery on the horizon.
Betty Rui Wang, senior China economist at Australian-based bank ANZ, said confidence in the economy was weak among Chinese households and private sector companies. She said post-Covid demand helped boost the economy early in the year, but there were signs that May was a turning point.
“It’s losing momentum,” said Ms. Cheek.
What’s next
Many economists and analysts expect a host of new stimulus measures to be announced next month following the meeting of the Politburo, the top decision-making body of the Chinese Communist Party.
Some new efforts are already being rolled out. The Commerce Department said on Thursday it was launching a campaign to boost car sales. Spending on cars, especially electric vehicles, has been a bright spot in recent years, aided by government subsidies and tax breaks. But now that Beijing has reversed some of those measures, car sales have slowed.
The ministry said it would support policies to boost new car sales. For example, it said it would expand electric vehicle charging infrastructure in rural areas to make it more practical to bring the technology to rural areas.
Li you contributed research.
