The People’s Bank of China (PBoC) has just cut the one-year prime lending rate (LPR) but 0.05% to 3.65%.
More significantly, the five-year LPR was reduced by 15 points to 4.30%. This is the rate that influences mortgages.
In a nutshell, these rate cuts to what are still high by western central bank settings will have very little to zero impact on the current trajectory of both the economy and the property sector.
Again, most economists are making the mistake of believing all problem roads lead to Covid. This has become the ‘go-to’ excuse in the private sector as well.
I have frequently highlighted that China has merely simultaneously been experiencing the coincidence of Covid and a long-term permanent re-setting of its economy to reflect more accurately the mature nature of that economy.
If you will, Covid has masked a far more fundamental and permanent shift in the nature of the China economy. From boom growth period, agrarian, to consumer society. Along the way dominating the world in goods exports and is now a key protagonist in the tech sector.
As impressive as all that be, the rapid and far easier growth pace of the past is at an end.
China will remain a powerhouse even at 2%. My forecast remains that China has permanently settled into a growth path of 2% to 5%.
Those who forecast a return to 8% style levels post-Covid lockdowns, however, are rather ignoring the realities of a slower Europe and USA, as well as the growing mortgage stress in China and the impact that will have on the full spectrum of consumer behaviour.
Most importantly, these 8% type economists are thinking in previous decade terms and completely ignore the newfound maturity of the China economy.
China has cut rates, but a more of a firm dawdle is how the economy is likely to look in coming years. Most likely even that will be a significant relative out-performance to Europe and the USA.
