China unveils measures to spur demand

China unveiled fiscal and monetary measures on Tuesday to strengthen domestic demand, introducing central government subsidies for eligible mortgages while expanding targeted funding for infrastructure, technological innovation and small businesses.

The moves will help ease the debt burden on qualifying households and channel more financing into investment, while bolstering market expectations by indicating policymakers' greater emphasis on stabilizing growth and stronger willingness to provide direct support to households, analysts said.

According to a notice jointly issued by the Ministry of Finance, the People's Bank of China — the country's central bank — and the National Financial Regulatory Administration, eligible new borrowers will receive an interest subsidy of an annualized 1 percentage point on up to 1 million yuan ($149,040) of commercial bank home loans per household for a maximum of five years.

Officials said in a statement that this marks the first time the central government has subsidized commercial bank home loans for certain groups with relatively modest incomes, improving scope for policy support on the demand side through closer fiscal and financial coordination.

The policy aims to ease the burden of households with essential housing needs, including migrant workers settling in cities, university graduates entering employment and urban wage-earning families, the statement said.

Eligible households must use newly issued mortgages to purchase their first homes, with a floor area of no more than 120 square meters and a price of no more than 1.5 million yuan. Both new and existing homes qualify, but refinancing of outstanding mortgages is excluded.

The subsidy could save a borrower a maximum of nearly 50,000 yuan in total interest payments on a long-term mortgage of 1 million yuan, the statement said. The policy takes effect on Thursday for an initial implementation period of one year. All qualifying households during that period will be eligible, with no ceiling on total subsidy funding and sufficient funds already budgeted, the statement added.

Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International, said, "Lowering household mortgage costs is a key move to stimulate homebuying demand and turn around housing market expectations."

Luo Zhiheng, chief economist at Yuekai Securities, said the interest subsidies will ease repayment burdens of eligible households, improve their cash flow and enhance their ability to withstand risks. The funds freed up could support additional spending, helping stabilize consumption, he said.

"The policy also marks a further shift in fiscal spending toward improving livelihoods and supporting housing needs, putting greater emphasis on investing in people," he added.

Alongside the fiscal support, the PBOC on Tuesday reduced the one-year interest rate on pledged supplemental lending — an instrument for providing large-scale targeted funding — by 0.25 percentage point to 1.5 percent.

It also expanded the facility's coverage to six types of infrastructure networks, namely water, new power grids, computing, next-generation communications, urban underground pipelines and logistics. The move will guide policy-oriented banks to strengthen support for relevant investment, thereby tapping domestic demand potential, it said.

Meanwhile, the PBOC increased the central bank lending quota for technological innovation and technical transformation by 200 billion yuan to 1.4 trillion yuan, raising the share of eligible loans funded through the facility from 60 percent to 100 percent.

Another 500 billion yuan was added to central bank lending quota for agriculture and small businesses, including 300 billion yuan for private enterprises. The expanded lending programs will encourage banks to step up credit support for these sectors, the central bank said.

The measures follow a State Council executive meeting on Monday that called for intensifying countercyclical adjustment of macro policies to address emerging challenges and strive to achieve annual development goals.

Recent official data shows sluggish demand despite resilient industrial output. In August, retail sales growth weakened, fixed-asset investment continued to contract, and financing activity slowed, with medium to long-term household loans — mainly mortgages — registering a net decline.

Liu Zhihua contributed to this story.

zhoulanxv@chinadaily.com.cn