China’s Biggest Banks Cut Deposit Rates to Spur Consumer Spending

Lowering deposit rates is one of the tools policymakers can use to stimulate spending. Lower interest rates are expected to create incentives for consumers to spend and invest their money instead of keeping their savings in banks.

The move shows that consumer spending, a key driver of economic growth, remains weak. After China lifted its COVID-19 restrictions late last year and reopened its economy, there were hopes that pent-up demand would encourage consumers to spend more freely, but in many areas of the economy that is not the case. did not go well.

Larry Hu, chief China economist at financial firm Macquarie Group, said the change in deposit rates “opens the way for further easing”. He added that the country’s central bank, the People’s Bank of China, may cut benchmark lending rates or take other measures to stimulate the economy in the coming months. He said lowering bank deposit payments could offset some of the financial pressure when the People’s Bank of China cut lending rates.

China has rebounded from last year’s slowest economic growth in decades, forecasting gross domestic product (GDP) growth of about 5% in 2023, but economic weakness remains. in the process of.

In the first three months of this year, China’s economy grew 4.5%, supported by increased spending on dining out and luxury goods. But the outlook doesn’t look very promising. China’s second-quarter gross domestic product (GDP) data are due out next month.

Youth unemployment is at a record high. The real estate market, a key sector of the economy for investment and job creation, remains depressed with little sign of recovery.

Betty Rui Wang, senior China economist at Australia-based bank ANZ, said confidence in the economy was weak across Chinese households and private firms. He said post-coronavirus demand helped boost the economy at the start of the year, but there were signs that May was a turning point.

“Momentum is running out,” Mr. Wang said.

Many economists and analysts expect a slew of new stimulus packages to be announced after next month’s meeting of the Politburo, the Communist Party’s top decision-making body.

Several new initiatives have already been rolled out. The Department of Commerce announced Thursday. start campaign To drive more car sales. Thanks to government subsidies and tax cuts, spending on cars, especially electric vehicles, has seen some positive signs in recent years. But car sales slowed as the Chinese government rolled back some of those measures.

The ministry said it supports the new car sales promotion policy. For example, it plans to expand the charging infrastructure for electric vehicles to rural areas, making it more realistic to introduce technology to rural areas.

Lee Yu Contributed to research.

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