Chinese authorities unveiled a sweeping set of economic stimulus measures on Wednesday, including interest rate cuts and a major liquidity injection, as Beijing intensifies efforts to buffer the domestic economy against the deepening fallout from the ongoing trade war with the United States.
The announcement comes just days before a high-stakes meeting in Switzerland, where U.S. Treasury Secretary Scott Bessent and lead trade negotiator Jamieson Greer will hold talks with China’s top economic policymaker, He Lifeng. The session marks the first tangible opportunity for both sides to de-escalate trade tensions following months of tit-for-tat tariff hikes that have rattled global markets and disrupted international supply chains.
The Chinese economy is already showing signs of strain. Factory activity contracted in April at its fastest pace in 16 months, according to recent data, amid growing fears that steep U.S. tariffs will exacerbate job losses and deepen China’s deflationary pressures.
“The domestic economy must be strong enough before China engages in any prolonged trade negotiations,” said Xing Zhaopeng, senior China strategist at ANZ, referring to Wednesday’s economic stimulus.
Financial markets responded positively to the measures and the prospect of revived trade talks. Chinese equities rallied as investors welcomed Beijing’s policy pivot.
Citi analysts described the move as potentially “tactical,” suggesting it may give Beijing more leverage heading into negotiations. “Timely domestic support could create more leverage for China,” they said in a note.
Key components of the stimulus package include a 10 basis-point cut to the central bank’s seven-day reverse repurchase agreement rate, lowering it to 1.40% starting May 8. The People’s Bank of China (PBOC) also announced a 50 basis-point reduction to the reserve requirement ratio (RRR) for banks, effective May 15, which will release approximately 1 trillion yuan ($138 billion) into the financial system — the first such move since September 2024.
PBOC Governor Pan Gongsheng said the central bank would also introduce low-cost relending facilities to support technology-related bond purchases, elderly care services, and consumer sectors. Existing tools aimed at aiding agriculture and small businesses will be reinforced, he added.
Meanwhile, mortgage costs for certain homebuyers will be reduced, offering additional relief to the housing market.
Regulators are also stepping up financial market support. Wu Qing, chairman of the China Securities Regulatory Commission, said assistance would be extended to A-share listed firms hit by tariffs. Separately, Li Yunze, head of the National Financial Regulatory Administration, announced a 60 billion yuan ($8.3 billion) expansion of a pilot program allowing insurance companies to invest more in the stock market.
Although monetary easing had been anticipated for months, Chinese policymakers held off amid concerns that a weaker yuan could trigger capital flight. Analysts suggest that a recent stabilization in the yuan’s exchange rate has now provided room for the PBOC to act.
“A weaker dollar certainly gives China more room to make monetary adjustments,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. While Xu downplayed the likely credit impact of the measures, he noted they could boost investor confidence and support equities.
However, some analysts caution the overall economic impact may be limited. Capital Economics argued that credit demand, not supply, remains the core constraint, and that broader fiscal stimulus would likely be more effective.
As the Swiss trade talks loom, sources told that U.S. and Chinese negotiators are expected to discuss reductions in broad tariffs and removal of duties on specific products. Other key topics include the U.S. de minimis threshold and Washington’s export control list.
Despite its tough rhetoric — Beijing has repeatedly pledged not to “kneel” to U.S. pressure — officials appear keen to insulate the economy from prolonged uncertainty.
“The stimulus measures are preventive in nature, as the U.S.-China trade negotiations may take quite a long time,” said Ma Hong, senior analyst at GDDCE Research Institution.
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