China’s central bank and financial regulators announced a broad package of stimulus measures on Wednesday, indicating efforts to support economic growth amid rising trade tensions. The People’s Bank of China (PBOC) will now cut the seven-day reverse repurchase rate by 10 basis points, lowering it from 1.5% to 1.4%, Governor Pan Gongsheng confirmed at a press briefing, as quoted on CNBC. This move is expected to bring down the loan prime rate by a similar margin.
In addition, the central bank will reduce the reserve requirement ratio (RRR) for banks by 50 basis points, freeing up around 1 trillion yuan ($138.6 billion) in liquidity. The rate cuts take effect Thursday, while the RRR cut will be implemented on May 15, according to state news agency Xinhua, quoted on CNBC.
Targeted Support for Key Sectors
Real Estate and Housing: Mortgage rates under the government-backed housing provident fund will be reduced by 25 basis points. First-time homebuyers will see five-year loan rates drop from 2.85% to 2.6%.
Auto Financing: The reserve requirement for auto financing firms will gradually be lowered to zero from the current 5%.
Consumption and Elderly Care: A 500-billion-yuan relending tool will be established to support spending in these sectors.
Further Policy Support in the Pipeline
Financial Regulatory Administration chief Li Yunze said additional measures targeting small and medium enterprises, as well as private businesses, are forthcoming. These efforts aim to cushion the blow from rising tariffs and bolster employment.
Lynn Song, chief economist for Greater China at ING, believes additional policy easing is still possible due to deflationary pressures and slowing growth, as quoted on CNBC.
Trade Talks on the Horizon
Meanwhile, China confirmed that Vice Premier He Lifeng will meet U.S. Treasury Secretary Scott Bessent in Switzerland later this week.This marks the first confirmed trade dialogue since the United States, under President Trump, sharply raised tariffs on Chinese imports to 145%. The upcoming meeting could signal a potential thaw in trade tensions.
Long-Term Stock Rally Possible?
As of now, this stimulus is less likely to instigate a long-term equity rally.Tianchen Xu, senior economist at the Economist Intelligence Unit, noted that borrowing in China has shown limited sensitivity to interest rate changes, as quoted on CNBC.
While monetary policy has been eased, significant new fiscal stimuli have been absent.However, policymakers have reiterated that they have sufficient tools for “worst-case scenarios.”
Time for Short-Term Trade?
Given the recent rate cut announcement and trade optimism, investors may choose to play leveraged China exchange-traded funds (ETFs) with a short-term view, to earn some quick gains.
Direxion Daily CSI China Internet Index Bull 2x Shares CWEB – Up 11.9% past week
Direxion Daily FTSE China Bull 3X Shares YINN – Up 12.2% past week
ProShares Ultra FTSE China 50 XPP – Up 8.3% past week
Direxion Daily CSI 300 China A Share Bull 2x Shares CHAU – Up 4.8% past week
Bottom Line
Investors should note that these leveraged products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
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This article originally published on Zacks Investment Research (zacks.com).
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