#TradeWarEases #USChinaTariffs #ChainaEconomy
Hello, crypto enthusiasts and financial gurus! While global markets juggle news, China is taking decisive steps to breathe new life into its economy. The People's Bank of China (PBOC) has done what many expected, but which has been the first step since October of last year: it has lowered key interest rates. This is part of large-scale monetary easing measures announced by Beijing to support slowing growth and mitigate the effects of ongoing trade disputes with the U.S.
What exactly is happening with the rates?
The PBOC did not just slightly 'adjust' the numbers. The annual Loan Prime Rate (LPR), a key benchmark for most loans to businesses and households, has been reduced by 10 basis points to 3.0%. The five-year LPR, which determines mortgage rates, has also dropped by 10 basis points to 3.5%. Both rates have reached new historical lows.
Following the regulator, the 'big players' have also entered the game. The four largest state-owned banks in China (Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China) quickly cut deposit rates by 5-25 basis points across different terms. For example, annual deposits now offer 0.95% per annum, while three- and five-year deposits offer 1.5% and 1.75%, respectively. The goal is simple: relieve pressure on bank margins and encourage people to spend rather than save, as Beijing actively injects liquidity into the system. Smaller banks will certainly follow their example.
The market's initial reaction: cautious optimism and the shadow of problems.
How did the market react to such large-scale actions? Chinese stock indexes demonstrated confident growth: the Shanghai Composite gained 0.4%, closing at 3,380, while the Shenzhen Component rose by 0.8%, reaching 10,249. This indicates an improvement in investor sentiment following the PBOC's decision.
The positive momentum was bolstered by the impressive debut of Contemporary Amperex Technology (CATL) shares, the global giant in battery production, on the Hong Kong Stock Exchange. This became the largest global listing of 2025, giving a boost to other major players. Among the notable growth leaders were BYD Company (+3.1%), Inner Mongolia BaoTou Steel (+2.2%), Cambricon Technologies (+1.4%), and China Merchants Bank (+0.8%).
However, it was not without a spoonful of tar. The offshore yuan slipped down for the third session in a row, reaching a weekly low around 7.22 per dollar. The lower rates make the yuan less attractive, and capital may begin to seek higher returns elsewhere. Moreover, technology stocks are once again under pressure after the recent U.S. warning about the use of Huawei Ascend AI chips. This reminds us that economic incentives are battling not only internal problems but also external geopolitical pressures.
Wider focus: bonds and trade frictions.
In the bond market, the yield on 10-year Chinese government bonds has fallen to 1.67%, close to three-month lows. This is a logical reaction: investors are reassessing risks and returns in light of the new PBOC rates, preferring safer assets amid overall economic uncertainty.
These monetary steps are being taken in a context where Beijing continues to accuse Washington of undermining the preliminary trade deal reached in Geneva, especially after the American warning about the use of Huawei Ascend AI chips. China calls these actions 'discriminatory' and 'market-distorting.' All of this only heightens concerns about another round of tensions between the two largest economies in the world.
Conclusion: Can 'cheap money' turn the trend around?
China has clearly made its move, launching the 'cheap money' mechanism in hopes of reviving economic growth. But is this the beginning of a long-term recovery or just a desperate attempt to maintain balance in the face of global storms? While Beijing strives to stimulate domestic demand, external pressures, whether trade barriers or technological sanctions, still loom on the horizon.
Will this powerful financial infusion become a real catalyst for the Chinese economy, or will it risk turning into just a temporary painkiller amid deeper structural and geopolitical challenges? The question remains open.