UBS Group's Asia Pacific investment director's office stated that yesterday (24th), the China National Development and Reform Commission held a press conference to introduce the situation related to financial support for high-quality economic development, with a number of heavyweight policies announced at the same time. A package of policies unveiled at the press conference.

In terms of monetary policy, the space for reserve requirement ratio cuts and interest rate cuts has been opened up. The People's Bank of China announced that it will soon cut the deposit reserve ratio by 50 basis points, providing about 1 trillion yuan of long-term liquidity to the banking system. This is the second reserve requirement cut of the same magnitude since January this year. The central bank also stated that it may further lower the reserve requirement by 25 to 50 basis points based on market conditions within the year. The timing and magnitude of this rate cut are in line with the bank's previous expectations, considering the significant 50 basis points rate cut by the Federal Reserve last week. The bank expects that by the end of the first quarter of 2025, the People's Bank of China may cut the reserve requirement by another 50 to 100 basis points and lower interest rates by 20 to 40 basis points.

In terms of real estate, mainland China is providing broader support. These measures are expected to improve the sentiment of the housing market in the coming months, but may not be sufficient to fully reverse the downward cycle of real estate, considering the current high inventory (with an average inventory cycle of 28 months as of August) and some bottlenecks in the actual implementation of existing stock buyback programs.

In terms of capital markets, new monetary policy tools are being created to support liquidity. This is the first time in recent years that the People's Bank of China has directly provided funding to the market to support stock repurchases, demonstrating the policy commitment to promoting share buybacks and maintaining market stability in the current market environment. In addition, PBOC Governor Pan Gongsheng mentioned that the state reserve fund is also under consideration.

Overall, the package of policies announced at yesterday's press conference exceeded expectations, indicating the government's aim to boost the economy and restore market confidence. These policies help to change overly pessimistic views and boost market sentiment in the short term. It is expected that there will be incremental policies in the future to ensure the achievement of the nearly 5% GDP growth target for the year. The key to whether the recovery can be sustained is that fiscal policy needs to work together to play a greater role in supporting the economy. Additional fiscal stimulus measures are expected to be introduced gradually to alleviate weak demand, including increasing special government bond issuance and increasing spending in areas such as affordable housing, elderly care, and education.