Analysis: Decoding the Incremental Moves in China’s New Stimulus Package

16 May 2025

By Zhou Junzhi

China on Wednesday released a series of policy measures aimed at boosting domestic demand and supporting the economy in response to escalating trade tensions with the United States.

At a press conference attended by top officials from the People’s Bank of China, the National Financial Regulatory Administration and the China Securities Regulatory Commission, a comprehensive package of policies was announced. Key measures include lowering the banks’ reserve requirement ratio (RRR), cutting benchmark interest rates and slashing rates on housing provident fund loans.

The market had long anticipated monetary easing. While the magnitude of the latest measures aligned with expectations, their implementation came earlier than many expected.

A breakdown of the policy package

The new measures are designed to stabilize market expectations and support economic recovery through monetary easing, regulatory reforms and capital market enhancements.

On the monetary front, 10 measures are grouped into three categories. The first focuses on quantitative tools, including cuts to the RRR to increase the supply of medium- and long-term liquidity. The second involves pricing mechanisms, such as reductions in policy interest rates, targeted lending facility rates and housing provident fund loan rates. The third centers on structural tools designed to refine existing instruments and introduce new ones that channel funding into technological innovation, consumption and inclusive finance.

Eight regulatory policy initiatives focus on improving access to financing. These include support for the real estate sector, expanded pilot programs allowing insurance funds to make long-term investments, and reduced capital risk weights for insurers’ stock holdings.

Other measures aim to boost financing for small, micro and private firms; support tailor financial services for foreign trade; revise M&A loan rules; expand the operational scope of financial asset investment companies; and promote science and technology-related insurance products.

Authorities plan to strengthen the role of state-backed funds — such as Central Huijin — in stabilizing capital markets. Reforms will deepen in innovation-focused equity boards, including the STAR Market and ChiNext, while rules governing asset restructuring by listed firms will be streamlined.

The measures also encourage the greater participation of medium- and long-term institutional capital in the equity and bond markets, particularly in financing technological innovation.

Background of the policy rollout

Despite market expectations of further monetary easing, the People’s Bank of China had paused following its previous cuts to the RRR and policy interest rates in September. The latest move to resume easing signals a recalibration in response to four shifting dynamics:

First, the tight supply of long-term funds in the interbank market

Since the start of the year, net financing through bank-issued interbank deposits has remained at historically elevated levels, underscoring mounting pressure on banks’ liability structures. The situation is expected to intensify as government bond issuance accelerates after an April Politburo meeting called for increased policy support. This has reinforced the need for central bank action to inject longer-term liquidity into the financial system.

Second, the unfolding impact of the U.S.-China trade war

The tariff war with the U.S. is beginning to affect China’s economic growth. April’s manufacturing PMI dropped to 49.0%, with declines in production, export orders and purchasing activities. While Chinese port throughput remained high in April, the PMI contraction suggests exports have largely been driven by inventory transfer to Southeast Asia and other regions. This trend is further supported by Vietnam’s more than 20% year-on-year growth in imports.

In essence, the trade war’s effects are now materializing, with a significant portion of the improvement in China’s economic and corporate profit data in the first quarter attributed to front-loaded exports. As the full impact of the trade war unfolds, China’s policymakers must implement measures that mitigate its negative effects on growth.

Third, the weakening real estate market

Although the property sector showed signs of recovery in the first quarter, with the area of commercial housing sold in 30 major cities returning to growth, the optimism was short-lived. Early-year strength led to market speculation that domestic demand was stabilizing, but data from April revealed a sharp reversal, with the total area of commercial housing sold in these cities dropping by 12.1% year-on-year.

As the property market weakens, the need for further monetary easing becomes more urgent.

Fourth, the Politburo meeting in April sets the tone for increased support

The April 25 meeting emphasized the need for more proactive and effective macroeconomic policies.

Since 2022, adjustments to monetary policy — whether significant shifts or subtle fine-tuning — have closely followed the directives set by high-level meetings. The tone established at the April meeting has paved the way for more relaxed policies aimed at boosting domestic demand. As a result, the space for monetary easing has expanded.

Messages behind the incremental policies

First, the timing of rate cuts comes sooner than expected

Since the Politburo’s December pledge for a moderately loose monetary policy, market expectations for interest rate cuts have increased, driving the yield on 10-year government bonds down to as low as 1.6%.

Initially, signs of economic improvement and repeated disappointments in rate-cut expectations led the market to temper its outlook after the Spring Festival, reflected in a stabilizing bond market. However, the escalation of the trade war in early April reignited hopes for monetary easing. Yet, repeated official statements expressing hesitation saw rate cuts delayed.

The interest rate and RRR cuts announced on Wednesday came sooner than anticipated, though the 10-basis-point cut in the policy rate was lower than the previous 20-basis-point reduction, falling short of market expectations. Despite this, stock market performance was relatively positive, as the easing measures sparked renewed optimism about the potential for future incremental policy actions.

Second, further property easing and mortgage rate cuts is in sight

The 25-basis-point cut to mortgage rates under the housing provident fund (HPF) scheme, which provides subsidized loans to homebuyers, will lower the rate on long-term loans for first-time buyers to 2.6% from May 8. This reduction is expected to save households more than 20 billion yuan a year in interest payments, providing crucial support for housing demand and helping to stabilize the struggling property market.

In previous rounds of policy interest rate cuts, HPF rates were unchanged. This latest adjustment signals a shift, creating room for further mortgage rate cuts and additional relief policies for the real estate sector.

Third, stronger-than-expected measures to bolster the capital market

As part of the policy package, the National Financial Regulatory Administration has committed to expanding the scope of long-term investment pilots for insurance funds, with plans to approve an additional 60 billion yuan in capital injections into the market. Additionally, the NAFR will reduce the capital risk weights for insurers’ stock holdings to encourage greater investment.

In parallel, the China Securities Regulatory Commission has pledged full support for sovereign wealth fund Central Huijin to act as a “stabilization fund,” aiming to provide further backing to the capital markets.

Zhou Junzhi is chief macro analyst at China Securities Co. Ltd.

This analysis has been edited for length and clarity

Contact editor Han Wei (weihan@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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