China has decided to lower interest rates and provide much-needed liquidity to its economy as the ongoing trade war with the US adds strain. On Wednesday, the People’s Bank of China announced cuts to bank reserve requirements and benchmark interest rates, introducing 1 trillion yuan (approximately £103.6 billion) into the banking system.
The governor of the People’s Bank of China, Gongsheng, confirmed that key interest rates would be reduced by 0.1 percentage points. This “moderately loose” approach is seen as a reaction to the current global economic uncertainty, marked by fragmentation and rising trade tensions.
China’s economy is under significant duress, particularly due to 145% tariffs on its exports to the US. Although its dependency on exports—especially to the largest consumer market—has decreased, exports still represent around 15% of the nation’s GDP.
The trade conflict has left Beijing and Washington at an impasse, with the ongoing situation threatening global markets and potentially harming both economies. Since Donald Trump took office, the US has imposed drastic tariffs on Chinese goods, prompting China to respond with a 125% tariff on American products.
In the coming days, Chinese and US officials are scheduled to meet and discuss how to address the escalating trade tension, marking the first high-level discussions since Trump’s “liberation day” declaration on April 2. China’s Vice President, His Lifeeng, will meet with US Treasury Secretary Scott Bescent during a meeting in Switzerland this weekend.
While trade agreements seem elusive, China is exploring other avenues to stimulate economic growth, particularly by encouraging consumer spending. Gongsheng noted that the borrowing costs of government-supported home buying programs have dropped to 2.6%, which is intended to help stabilize the real estate market.
The real estate sector is crucial to China’s economy, making up nearly a third of its GDP. However, it has faced various regulatory and economic hurdles in recent years, which have dampened consumer interest in purchasing new homes. During the first quarter of this year, real estate sales per square meter decreased by 3%, and investment in the sector fell by 10%.
According to financial research firm Capital Economics, the impact of these financial stimuli is expected to be “positive but modest.”
