China's Mortgage Rate Cut Ineffective?..."No Difference at All"

Existing Mortgage Loan Rates Lowered to New Levels, but Consumer Spending Remains Insufficient
Interest Costs Reduced by 28 Trillion Won for 50 Million Households... "Once Consumption Declines Become Habitual, They Are Hard to Reverse"

The People's Bank of China, the country's central bank, announced as part of an economic stimulus plan that it would lower existing mortgage rates to the level of new mortgage rates. However, the South China Morning Post (SCMP) reported on the 26th that this measure is insufficient to boost consumption among existing homeowners and revive the economy.

At a joint press conference held by financial authorities on the 24th, Pan Gongsheng, Governor of the People's Bank of China, stated that along with lowering the reserve requirement ratio and the 7-day reverse repurchase agreement (reverse repo) rate, the existing mortgage rates would be reduced to the level of new mortgage rates. The average reduction is expected to be around 0.5 percentage points.

Shanghai, China

If existing mortgage interest rates are lowered, approximately 50 million households will benefit, and household interest expenses are estimated to decrease by an average of 150 billion yuan (about 28.44 trillion won) annually. At the press conference, Governor Pan said, "This will ultimately help promote consumption and investment and reduce early repayment of mortgage loans."

The reason China has introduced this economic stimulus measure is due to concerns that the 'around 5%' growth target for this year is at risk. The Chinese economy grew by only 4.7% in the second quarter. Retail sales and industrial production in August increased by 2.1% and 4.5% year-on-year, respectively, falling short of market expectations of 2.5% and 4.8%. Although the Chinese government has introduced various stimulus measures, including consumption promotion policies, domestic demand appears to remain sluggish. Early repayment of mortgages due to high interest rates is also identified as a major factor contributing to the slowdown in consumption.

However, SCMP reported that voices are emerging among existing mortgage holders that the measure has low effectiveness in stimulating consumption.

Ivy Chai, who lives in Shanghai, is repaying 15,000 yuan (about 2.84 million won) monthly on her mortgage. If the loan interest rate is lowered, her monthly burden would decrease by several hundred yuan. However, she told SCMP, "That money can't buy anything in Shanghai." Shanghai is known as one of the most expensive cities in the world, with the average lunch costing over 100 yuan (about 19,000 won). She said, "Since my income hasn't increased significantly, I have no choice but to lower the priority of other expenses. Many expenses that used to be essential have now become optional, and I am making difficult choices."

Wu Zi, a resident in his 30s living in Guangzhou who repays thousands of yuan monthly on his mortgage, told SCMP, "It makes no difference." He said that earning money is becoming increasingly difficult, expenses are rising, and purchasing power has declined, adding, "Increased spending depends solely on increased income."

Experts say more meaningful measures are needed to stimulate consumption.

Sandy Lim, Director of Corporate Ratings at S&P Global Ratings, said at a conference held in Hong Kong on the 24th, "Based on observations on the ground, despite many government efforts, consumer sentiment has not improved significantly." He noted that the real estate downturn has persisted and that this year, the decline in consumption has been particularly noticeable, adding, "Once it becomes a habit, it will be difficult to reverse."

This content was produced with the assistance of AI translation services.