Jakarta – Cutting home ownership credit (KPR) interest is one of China’s ways of increasing public spending. However, that is not enough.
Last week, China said it would cut existing mortgage interest rates and relax regulations for first-home buyers in big cities. According to the central bank and financial regulators, this is a step that is conducive to increasing public consumption.
However, to prevent profit margins from shrinking further, state-owned banks have also lowered deposit interest rates by 10-25 basis points. Meanwhile, the mortgage interest rate for first homes is around 4%, while the one-year fixed deposit interest rate is around 1.5%.
“This is more like a redistribution of income. The impact is ‘limited’ on (public) consumption,” said Chief China Economist at Nomura, Ting Lu, quoted by Reuters, Saturday (9/9/2023).
Analysts at Nomura estimate that by reducing mortgage interest rates, borrowers can save 200-300 billion yuan per year or around IDR 419-628.5 trillion (exchange rate IDR 2,095). But they also warned that a 15 basis point cut in interest rates on China’s 131.4 trillion yuan in household savings would reduce interest income by 197 billion yuan a year.
Efforts to stabilize the property market in a country where 70% of household wealth comes from the real estate sector are not in vain, analysts say. But ultimately, the most effective way to encourage Chinese people to spend is to transfer resources to consumers from other sectors of the economy, not from household savings.
“The main constraint is people’s income,” said Zhaopeng Xing, senior China strategist at ANZ, adding that the recovery in consumer confidence from the latest measures would be “mild.”
Depositors are affected
A worker at an asset management company, Simon Yu, said that his mortgage payments would indeed decrease with China’s new policy. However, this was offset by low deposit interest income.
“The reduction in interest rates has only a small impact on my purchasing power,” he said.
In hopes of maintaining his profits in the future, he might move some of his money into stocks and bonds. But others are more risk-averse, especially amid increasing job uncertainty.
Li Xiao, a data analyst in Shanghai, said he would keep his money in the bank despite being unhappy with lower interest rates.
“The government wants to increase consumption, but in the end it is the depositors who bear the impact,” Li said.
“People don’t consume because they don’t have money so cutting deposit interest rates won’t work,” he added.
Meanwhile, Nancy Yang, who works for an auto parts supplier in the central city of Wuhan, said the main reason she didn’t spend her money was because her boss didn’t pay her year-end bonus for 2022.
“I saved not for small interest, but because there were too many uncertainties: unstable business, no increase in income, mortgage payments, raising children,” Yang said.
“Saving cash is very important,” he concluded.
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2023-09-10 01:00:44
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