Ahead of US/China trade talks later this week, PBOC, NFRA and CSRC held a press briefing today and rolled out a package of stimulus measures to support the economy.

Ten key measures from the PBOC:

1. Cut the RRR by 0.5 ppts, by injecting around RMB 1 trn in long-term liquidity;
2. Lower the RRR temporarily for auto finance and financial leasing firms from 5% to 0% to boost capital efficiency;
3. Cut the 7-day reverse repo rate by 0.1 ppt, from 1.50% to 1.40%;
4. Reduce structural tool rates by 0.25 ppts, including relending for agriculture/SMEs (1.75% → 1.5%) and PSL (2.25% → 2.0%);
5. Cut housing provident fund loan rates by 0.25 ppts; first-home loans (5Y+) drop from 2.85% to 2.6%;
6. Expand tech and equipment relending quota by RMB 300 bn, by raising it from RMB 500 bn to RMB 800 bn;
7. Set up a RMB 500 bn relending facility to support consumption and elderly care lending;
8. Raise the agriculture and SME relending quota by RMB 300 bn;
9. Merge two capital market tools into an RMB 800 bn facility, combining the RMB 500 bn swap and RMB 300 bn relending programs;
10. Launch a risk-sharing scheme for tech bonds, with PBOC relending to support bond purchases.

Eight key measures from the NFRA:

1. Accelerate financing mechanisms under the new property model to support market stabilization;
2. Expand pilot programs for long-term insurance fund investments to bring in more capital;
3. Lower risk weighting for insurance equity investments to support capital market recovery;
4. Introduce policies to boost financing for SMEs and private firms, with stronger coordination;
5. Launch banking and insurance support for foreign trade, aiding firms hit by tariffs;
6. Revise M&A loan guidelines to promote faster industrial upgrading;
7. Allow qualified national banks to set up financial asset investment firms to support tech;
8. Issue guidelines to enhance tech insurance's role in risk sharing and innovation support.

Five key measures from the CSRC:

1. Support tariff impacted listed companies through share pledge, refinancing and capital raising;
2. Advance steadily the inclusion of RMB trading counters in the Stock Connect program;
3. Encourage qualified Chinese firms to get listed overseas;
4. Attract high quality US listed Chinese firms to get listed in mainland China and Hong Kong;
5. Promote Shanghai and strengthen Hong Kong as global financial centres.

Commentary:

This round of stimulus is well within our expectation (see: China: Strong 1Q, cloudy outlook) in view of the heightening external headwinds and the weakening domestic demand. The goal is to lower financing costs, provide more liquidity to the system and to stabilize market expectations. Policy continuity is indispensable to achieve the 5% growth target set by the Chinese government.

Demand-side measures

The monetary easing aims at boosting domestic demand through expanding credit, soothing property and equities market, and perking up consumption sentiment.

First, weak credit demand calls for monetary easing. Even after the stimulus measures since September 2024, growth in private sector total social financing (TSF) continues to decelerate. Private fixed asset investment also remained flat in Q1 2025, despite falling for two consecutive years. This poses a stark contrast to soaring government credit.

As such, the central bank has introduced both quantitative and price-based measures. The 50bps RRR cut will inject RMB 1 trn of liquidity. Meanwhile, the central bank also cut the 7-day reverse repo rate from 1.50% to 1.40% and reduced structural tool rates by 25bps, including relending for agriculture/SMEs and the Pledged Supplementary Lending Facility (PSL).

Second, the property market remains at the crux of the matter as it accounts for 20% of GDP. While there are initial signs of stabilization, such as bottoming-out real estate lending, further support is required. The inventory level remains elevated at 27 months on a 12-month moving average basis. Against this backdrop, the NFRA has enabled commercial banks to increase lending to “White-List” projects to RMB 6.7 trnn. The PBOC also cut housing provident fund loan rates and first-home mortgage rates by 25bps, respectively.

Third, Beijing is sparing no effort to support the equities market given its relatively low valuation. The price-to-earnings (PE) ratio of the Shanghai Composite Index remains low at 13.0, far below that of the S&P 500 (22.7) as of yesterday. Against this backdrop, regulators will inject RMB 800 billion through swaps for financial institutions and relending for share buybacks.  Also, the equities risk factor will be reduced by 10% to encourage related investment.

Domestic demand

Stabilizing the stock market is as critical as supporting real estate in restoring confidence and driving domestic demand. A-share firms derive nearly 90% of revenue domestically, tightly linking their performance to the broader economy. First-quarter results show listed firms’ net profits up 3.6% YoY, with real economy-centric companies growing 4.3%, underscoring their stabilizing role.

Boosting market liquidity and incentivizing long-term investment would direct capital into productive sectors, supporting jobs and incomes—particularly vital as manufacturing and services PMI employment indices weaken of late. With exports heavily influencing coastal employment, reinforcing domestic demand through financial market stability is essential to offset external risks.

Automobile sector is another key highlight, which comprise ~10% of total retail sales. Policies are needed to help cushion the sector's overcapacity. Automobile fixed asset investment (FAI) rose 24.5% YoY YTD in Q1 2024, while retail sales fell 0.8%.

External demand

In response to escalating trade tensions, China has introduced a series of targeted policy measures to cushion the economic blow and stabilise growth. Financial support is being strengthened through expanded financing coordination mechanisms for all trade enterprises, with banks urged to accelerate policy delivery and provide tailored aid to firms most affected by tariffs. Export stability measures include enhanced export credit insurance, wider coverage, preferential rates, and faster claims processing. Banks are also directed to support cross-border e-commerce and overseas warehousing, alongside broader integrated financial services. April business surveys point to a swift and severe slowdown, with the manufacturing PMI falling into contraction at 49.0 and new export orders falling to 44.7, underscoring the urgency of policy action amid the deepening impact of the US tariffs.

Technology

The expansion of the tech innovation fund and the push for banks to expand financial asset investment arms underscore China’s drive for tech self-sufficiency amid rising US export restrictions. These measures aim to channel capital into strategic sectors, reinforcing domestic innovation and reducing reliance on foreign technology. Against this backdrop, we expect hi-tech FAI to continue outperforming as a key pillar of structural growth.

Rates implications:

The new set of policies sends a positive signal to the market. Offshore CNH once hit 7.19 on an intra-day basis. Onshore 2Y CGB yields edge down from 1.48% to 1.46%, while 10Y yields remain steady at around 1.63%. Looking ahead, the benchmark rate cut will likely keep short-end CGB yields in-check. Long-end rate will remain stable amid a more optimistic growth outlook, better asset market performance and accelerating bond issuance. The upshot is that curve will likely steepen.


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