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Xi Jinping’s missed opportunity

President Xi Jinping had his opportunity to make a dramatic statement about new help for the country’s economic black hole—AKA housing and property—and tanked it on Monday.

The policy was outlined on Friday by the government with reduced loan-to-valuation ratios, lower (record) low rates for first and second home buys, and a special fund (finally) to provide $US42 billion in finance to purchase unsold houses and apartments and rent them for social housing.

Additionally, the country’s central bank started regular auctions of long-dated bonds to raise money to help finance assistance to the property sector. These auctions, totaling 1 trillion yuan (around $US140 billion), will continue until November in an attempt to inject more money into housing and property to kick-start activity.

That ignores the hundreds of billions of dollars in new money freed up by a series of reductions in bank reserve asset ratios over the past year and a half—all of which have done nothing to steady the sinking sector.

These announcements came Friday from the People’s Bank of China and its boss and overseer, the Communist Party’s Central Financial Commission, with analysts noting the record-low rate packages for new home buyers which did attract attention.

On Monday came the big opportunity for a dramatic move to show how serious the Xi Jinping government was to help property escape its mess (created by Xi Jinping and his cohorts)—this was the monthly setting of the one- and five-year Loan Prime Rates (or LPRs) by the central bank.

The outcome: nothing happened with the benchmark lending rates left unchanged. While this was in line with market consensus. The one-year loan prime rate (LPR) was kept at 3.45%, while the five-year LPR was unchanged at 3.95%. Both are historic lows, which tells you just how depressed demand for loans and new funds is across the entire Chinese economy.

The five-year LPR was lowered by a record 0.25% in February to support the housing market.

Nothing happened, prices of new homes fell more steeply, and new investment in property is now falling at an annual rate of nearly 10%, while new sales are falling at close to 25% a year.

New bank loans in China fell more than expected in April (the lowest amount since July last year) from the previous month, while broad credit growth hit a record low, official central bank data showed last week.

“Given the strength of the recent supportive policy rollout, the odds of further monetary policy easing in the coming months to support these efforts have risen,” economists at ING said in a note, Reuters reported.

They expect one or two cuts to the LPR this year, along with a further reserve requirement ratio (RRR) cut.

But Monday was an opportunity lost to make a big statement about the government’s intentions—and Xi Jinping failed.