China has announced a series of measures aimed at mitigating the impact of U.S. President Donald Trump’s trade war, with the two nations set for high-stakes discussions later this week.
In response to the economic strain caused by Trump’s tariffs, Chinese financial officials outlined plans to cut interest rates and reduce bank reserve requirements, designed to boost lending. They also announced increased funding for factory upgrades, innovation, and elder care services, aiming to stimulate growth in key sectors of the economy.
The U.S. tariffs have started to weigh heavily on China’s export-driven economy, which is already grappling with a downturn in the property sector. The central bank’s new measures are seen as a direct attempt to provide relief and stimulate growth.
Late Tuesday, it was announced that U.S. Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng would meet later this week in Geneva, Switzerland, to resume trade talks. The meeting could be a pivotal moment, with both sides publicly maintaining their positions on tariffs, raising concerns over the future direction of the trade dispute. Stephen Innes of SPI Asset Management warned that the talks could either stabilize fragile market confidence or escalate tensions further.
Both the U.S. and Chinese economies have shown signs of strain, with U.S. GDP contracting by 0.3% in the first quarter of the year. Meanwhile, China’s economy grew by 5.4% in Q1, driven by increased factory output to meet a surge in orders. However, recent reports suggest a slowdown in new export orders and business sentiment, raising questions about the true state of China’s recovery.
On Wednesday, China’s central bank, the People’s Bank of China (PBOC), made several key announcements aimed at providing economic relief:
-
The reverse repo rate was reduced to 1.4% from 1.5%.
-
The PBOC’s lending rate to commercial banks was cut by 0.25 percentage points to 1.5%.
-
The required reserve ratio for banks was lowered by 0.5%, freeing up an additional 1 trillion yuan ($137.6 billion).
Additionally, the central bank reduced interest rates on five-year housing loans to support the property market.
These economic measures, along with the announcement of trade talks between China and the U.S., led to a positive market reaction. Share prices surged more than 2% in Hong Kong and rose 0.5% in Shanghai early Wednesday, while U.S. futures also advanced.
However, Tan Jing Yi of Mizuho Bank cautioned that the market’s reaction would likely remain tempered, noting that any trade resolution could take time and that short-term tariff reductions or exemptions might be limited.
