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Luna Sun

Frank Chen

China’s mortgage rate cut for existing properties will hardly make any impact for Ivy Cai, as the Shanghai-based homeowner is facing the burden of a 15,000 yuan (US$2,131) monthly repayment.
She is expected to save a few hundred yuan per month once the rate cut, announced on Tuesday as part of a bumper round of measures to support the world’s second-largest economy, is implemented.
But the 43-year-old said that much money “can hardly do anything in Shanghai”, one of the most expensive cities in the world, where a standard lunch can easily cost 100 yuan (US$14.2).
“With no significant increase in income, I can only deprioritise other expenses,” Cai said.
“Many costs that used to seem necessary now feel optional, leading to tough choices.”
Cai is among the large group of homeowners that policymakers had hoped to appease by reducing the outstanding mortgage rate by half a percentage point, amid efforts to spur lagging consumption, but that hope might just be empty.
If I can avoid spending, I will
Wu Zi
“I’m glad I still have my job,” added Cai, who has seen the pharmaceutical company she works for lay off staff.
Cai’s investments are also depreciating, forcing her to start to save money amid widespread pessimism about income growth and slowing economic expansion.
The policy changes announced by People’s Bank of China governor Pan Gongsheng on Tuesday also included cutting the benchmark policy rate by 0.2 of a percentage point and the reserve requirement ratio – the amount of cash that commercial banks must hold as reserves – by half of a percentage point.
New tools were also introduced to boost capital markets as policymakers announced a coordinated package of stimulus measures.
However, “it doesn’t make any difference”, said Wu Zi, a homeowner in his thirties.
“If I can avoid spending, I will,” Guangzhou-based Wu said, adding that he only repays a few thousand yuan off his mortgage per month.
Wu said that earning money had become increasingly difficult, while purchasing power had dipped with growing expenditures.
“For me, increased spending hinges solely on more income,” he added.


The reduction in existing mortgage interest rates is expected to benefit 50 million households, or about 150 million people, reducing household interest expenses by an average of roughly 150 billion yuan (US21 billion) per year, according to Pan.
“This will in turn help promote consumption and investment, reduce early mortgage loan repayments,” Pan told a joint press conference on Tuesday alongside minister of the National Administration of Financial Regulation Li Yunze and China Securities Regulatory Commission chairman Wu Qing.
The rate reduction would narrow the gap between new and existing mortgages, which has been a key motivation for homebuyers to repay home loans in advance over the past couple of years.
Real property agents said that the announced change to the mortgage rate had prompted many clients to make inquiries.
But for Cai, and her friends, “there is talk, but not a lot, due to little effect”.
Beijing has been firing on all cylinders to spur domestic consumption to keep growth on track, especially after August’s key economic data indicated growing difficulties for China to attain its ambitious “around 5 per cent” growth goal for this year.


Retail sales in China rose by 2.1 per cent year on year last month, lower than the 3.4 per cent year on year increase in the first eight months of the year, according to the National Bureau of Statistics.
Early mortgage repayments due to high interest rates are also being blamed for the tepid consumption growth.
The PBOC’s financial stability report published in July revealed that monthly early mortgage repayments averaged 387 billion yuan between September and December 2023, representing an annual early repayment total of 4.6 trillion yuan (US$654 billion).
Pan also said that when the central bank designed monetary policy tools and mulled adjustments, one key consideration was to promote a moderate recovery in prices.
China’s consumer price index in August edged up marginally by 0.6 per cent, extending over a year of economic and consumption weakness amid deflation concerns.
If it becomes a habit, it’ll be pretty difficult to reverse
Sandy Lim, S&P Global Ratings
The reading remained below the around 3 per cent growth target for the year.
To boost consumption, China had launched a large-scale car and household appliance trade-in programme in March, but analysts have long called for more meaningful measures to better boost consumption.
“What we observe on the ground is that sentiment is not picking up meaningfully despite a lot of the things that the government is doing,” Sandy Lim, director of corporate ratings at S&P Global Ratings, told a conference on Tuesday in Hong Kong.
In addition to a continuation of last year’s sluggish sentiment on the property front, the downgrading of consumption has been particularly notable this year, she added.
“If it becomes a habit, it’ll be pretty difficult to reverse,” Lim added.
Additional reporting by Sylvia Ma


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Raft of policy and interest rate changes were unveiled on Tuesday as China’s policymakers sought revive the world’s second-largest economy


Raft of policy and interest rate changes were unveiled on Tuesday as China’s policymakers sought revive the world’s second-largest economy.
