China’s latest monetary policy moves, including interest rate and reserve requirement ratio (RRR) cuts, were largely anticipated. However, the coordinated nature of the policies, coupled with unexpected support for the stock market, caught many investors off guard. While these measures are unlikely to dramatically boost economic growth or commodity demand, they do create a more accommodative setting for potential fiscal and property policy follow-throughs. The People’s Bank of China (PBoC) is likely setting the stage for broader, more impactful measures, dependent on the country’s economic performance as it aims to hit its 5% GDP target.
Policy Announcements: A Coordinated Approach
China’s recent economic challenges have led its regulators to implement a series of coordinated policies aimed at stabilising growth and addressing social stability concerns. The key announcements include:
- Policy rate cut of 20 basis points and a RRR cut of 50 basis points.
- Stock market support through a RMB500 billion swap facility and a RMB300 billion refinancing facility for stock buybacks.
- Property market support, with a 50 basis point cut in mortgage rates and a reduction in down payments for second homes from 25% to 15%.
While none of these individual measures were entirely surprising, their combination—particularly the stock market support—marks a significant shift in the PBoC’s approach. This is the first time the PBoC has introduced such direct stock market interventions, signaling an expanded balance sheet strategy.
What has caused the PBoC to act?
Domestic economic concerns, particularly with the property market, along with youth unemployment approaching 19%, growing risks of deflation, and the potential for missing GDP targets, have pushed Chinese policymakers to act decisively. China’s economy has struggled to reach its “around 5%” growth target, with GDP projections closer to 4.6% to 4.7%, prompting fears of missing its target.
Impact of Property and Stock Market Support
The stock market support measures are arguably the most important aspect of this policy package. The RMB500 billion swap facility for brokers and funds, alongside the RMB300 billion refinancing facility for stock buybacks, represents a novel method for stabilising the stock market. These facilities will allow brokers to swap illiquid assets for more liquid government bonds, bolstering liquidity and confidence in the market.
On the property front, the PBoC’s measures, while positive, are insufficient to address the deep-seated issues plaguing China’s real estate sector. The reduction in mortgage rates and down payment requirements are welcome, but the impact will be limited given the relatively small scale of the measures. For example, the RMB300 billion re-lending loans for unsold property purchases only amount to about 0.4% of China’s GDP, a far cry from the multi-trillion-yuan stimulus needed to make a substantial difference. However, the direction of these policies signals that more significant property easing measures, particularly in larger cities, are likely on the horizon.
Should we expect further stimulus?
The recent monetary policy actions are just the first step. More robust fiscal and property policy support is likely to follow, particularly after key political events like the October Politburo meeting and the US presidential election in November. China is expected to wait for the election results to better gauge the external environment, especially given the potential for trade tensions with the US. If export growth falters significantly, China may start sizable fiscal stimulus to reignite growth.
Further fiscal and property easing measures are anticipated to help China achieve its growth target. In particular, fiscal spending on infrastructure and housing, funded by the PBoC’s balance sheet, could drive reflation. However, the timing of these measures remains uncertain, and the PBoC will likely move cautiously to avoid inflating another property bubble.
Australian Equity Positioning
What does this mean for Australian equity investors? The markets consensus overweight to the financials sector with strong performance from the banks left many investors underweight resources. As graphed below, this is starting to normalise and we saw large short covering and a quick exposure rotation back into the materials sector.

Source: Factset Data, Clime
Summary
China’s recent monetary policy adjustments are part of a broader strategy to create a more accommodative environment for future fiscal and property stimulus. While these measures alone are unlikely to reignite strong growth, they lay the groundwork for more significant policies to come. Investors should watch for further fiscal and property easing, especially after key events like the October Politburo meeting and the US election. The PBoC’s guidance suggests that additional stimulus will likely arrive after Golden Week, as China aims to maintain social stability and hit its 5% GDP target. In the scenario of further fiscal stimulus, Climes preferred exposure to the resources sector remains BHP as a large, diversified miner and Capstone Copper for concentrated exposure to the electrification thematic.