China Gives More Money As The Vote For Country Garden Gets Closer

BEIJING and HONG KONG, Sept. 1 (Reuters) - China took more steps on Friday to help the country's struggling economy. Top banks cleared the method for more cuts in loan rates, and sources say Beijing plans to take more steps, such as making it easier to buy a home.

As part of these steps, the government also cut the amount of foreign exchange reserves that institutions need to keep. Investors were happy about the steps, and experts said they should keep the property market from falling even more.

China is dealing with a slowdown that has shaken markets around the world. The attention is now on problematic developer Country Garden's (2007.HK) growing debt problem, which is happening in a sector that makes up about a quarter of the economy.

As pressure grows, the government has taken a few steps to boost the economy and get the real estate market going again. These steps include making it easier for people to borrow money and lowering the amount of foreign currency banks must keep on hand as reserves.

Four people who know about the situation say that the country will take more steps, such as making it easier to buy a house.

Two of the individuals said that steps that regulators like the home ministry, the bank, and financial inspector have been implementing for some time now will be put into place in the coming weeks.

Betty Wang, a senior China economist at ANZ, said that the market's hopes have been surpassed by several property-easing measures taken across the country in the past two weeks.

Test Of A Country Garden

In the short run, though, the market will be affected by how investors feel about Country Garden after a key test.

Country Garden moved the due date for stakeholders to vote on whether to delay payouts for a domestic 3.9 billion yuan ($537 million) private bond to Friday at 1400GMT to give investors "enough time" to get ready for the vote.

Sources with direct knowledge of the situation said that some mainland holders of that private Country Garden bond were paid interest before the vote result on Friday. They did not want to be named because they were not allowed to talk to the press.

Country Garden did not want to say anything.

The vote on Friday is a big obstacle for Country Garden as it tries to stay out of default. One buyer of the developer's dollar bonds said that if the company can't extend its domestic debt, it won't be able to pay its foreign investors.

"This seems to be a slow-moving vehicle crash," stated the shareholder, who did not want to be named because the issue was sensitive. He or she also said that worries were mostly about the uncertainty of the economy as a whole and problems with Washington.

Country Garden, which has sold more homes than any other private developer in China, did not reply right away to a request for comment from Reuters.

There is a lot of focus on Beijing to take steps to help the housing market, and people are worried that officials will not be able to stop a drop in China's overall economic growth.

China's prices for new homes dropped for the 4th month in a row in August, as per to a private poll released on Friday. This was because the mortgage debt crisis kept trust low, even though the government took some steps to help.

Rates On Deposits Fall

On Friday, the central bank said that starting on September 15, it would decrease the foreign exchange reserve minimum ratio (RRR) by two hundred basis points (bps), from 6% to 4%. This is thought to be a move to slow the rate at which the yuan falls.

The websites of each bank showed that the Commercial and Industrial Bank of China (601398.SS), the China Construction Bank Corp (601939.SS), and the Agricultural Bank of China (601288.SS) were among the lenders who lowered borrowing rates on Friday. Several medium-sized banks also said they would start lowering the interest rates on savings by 10 to 25 basis points.

The steps helped boost people's trust in the market, and beaten-down property stocks went up. China's CSI 300 Property Index (.CSI000952) ended up 2.4%, whereas the blue-chip CSI300 Index (.CSI300) went up 0.5%.

Three people who know about the situation indicated to Reuters on Tuesday that the interest rates on deposits at big state banks would go down as the banks get ready to lower the interest rates on mortgages soon.

On Thursday, China's central bank as well as the monetary regulator said that first-time home buyers who already have mortgages can ask their banks for lower rates of interest on their loans starting on September 25.

The bank rates have been cut for the third time in a year. These cuts are bigger than the ones in June and September of last year.

A banking expert at Moody's named Nicholas Zhu said that lower rates for deposits will help offset some of the pressures on banks' net interest margins, which is a key measure of how profitable they are.

"The deposit rate cut has a great effect, as deposits make up nearly three-quarters of Chinese bank’s debts," said Zhu.

At the June end, China's home loans were worth $5.29 trillion, or 38.6 trillion yuan. This was 17% of all loans made by Chinese banks.

Also, Beijing and Shanghai said on Friday that they would give first-time homebuyers preferential loans, no matter what their credit history was like before.

Every one of China's first-tier towns have expanded the meaning of first-home mortgages to make buyers feel better about buying.

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