China cuts a policy rate and subsidises mortgages as factory activity returns to growth

The People’s Bank of China announced a raft of strengthened support measures on Tuesday^1,6. It said it would cut the rate on its pledged supplementary lending by 25 basis points⁵, taking that mortgage-supplementary lending rate to 1.50% from 1.75% to encourage policy banks to support the real economy⁴. One account described the move as a policy rate cut of 0.25% to boost infrastructure investment, and noted that pledged supplementary lending is a tool used to provide long-term funds to policy banks³.

The fiscal side moved with it. The Ministry of Finance, the central bank and the National Financial Regulatory Administration jointly announced interest subsidies for home buyers². China will offer subsidies on interest costs for eligible first-home mortgages as Beijing attempts to revive home sales and turn around the years-long slump in the property sector⁸, subsidising one percentage point of mortgage interest for first-time buyers⁷.

Why it matters to investors

The activity data improved at the same time. Official and private gauges of factory, services and construction activity all picked up in September^9,13. China’s factory activity returned to growth in September amid the AI boom^11,12. Services growth hit a three-month high in the private survey¹⁰.

Bloomberg reported that Chinese economic activity rebounded with stimulus lifting the outlook¹⁵. One account tied the manufacturing gain specifically to the AI boom and to easing conditions¹⁴. The central bank framed its own package around the real estate market and around promoting employment and income growth⁶.

The Sacramento Bee carried the Reuters report of Chinese factory activity expanding in September amid the AI boom¹¹. The Wall Street Journal said the improvement ran across the factory, services and construction gauges alike¹³.

What to watch

The open question is whether a cut of this size, plus targeted mortgage subsidies, changes the property trajectory rather than merely steadying it^2,5,8. The subsidy is narrow by design, aimed at eligible first-home borrowers rather than the whole market^7,8.

Two follow-throughs matter for investors. The first is home sales after the National Day holidays, which the September survey releases were timed ahead of⁴. The second is whether the AI-linked manufacturing strength that lifted the September reading broadens into domestic demand, which is what the employment and income language in the central bank’s statement is aimed at^6,9,12.