To revive spending, China needs more than cheaper mortgages.

After China’s most recent measures to support the ailing property sector, Simon Yu’s monthly mortgage payments for his Shanghai apartment will decrease, as will the interest he earns on his bank deposits.

The difficulty Beijing faces in reviving sluggish consumer spending is made clear by Yu’s predicament. Analysts say that consumers do not have the means to loosen the purse strings, despite the fact that lowering interest rates eases the financial burdens on households. However, the dire economic outlook and the absence of longer-term reforms in areas like healthcare and pensions mean that consumers do not have the means to loosen the purse strings.

Yu, who works for an asset management company, stated, “The rate cuts have little impact on my spending power,” pointing to one of the stated objectives of those measures.

In what the central bank and financial regulators jointly deemed moves “conducive to expanding consumption,” China announced last week that it would reduce interest rates on existing mortgages and relax rules for first-time homebuyers in major cities.

However, in a coordinated move, state-owned banks have also lowered deposit rates by 10-25 basis points to prevent profit margins from decreasing further.

The mortgage rate cuts, according to Nomura analysts, could save borrowers between $27 billion and $41 billion annually. However, they also warn that a 197 billion-yuan annual decrease in interest income would result from a 15 basis point cut in interest rates on the 131.4 trillion yuan of deposits held by Chinese households.

Contract rates for first homes are around 4%, while one-year fixed store rates are generally 1.5%.

“It’s even more a rearrangement of pay,” said Chime Lu, boss China financial specialist at Nomura, adding it had “restricted” influence on utilization.

Analysts believe that there is merit in attempting to stabilize the real estate market in an economy where 70% of household wealth is invested in real estate. In any case, the best method for empowering Chinese individuals to spend is move assets to purchasers from different areas of the economy, as opposed to from family reserve funds.

According to Zhaopeng Xing, senior China strategist at ANZ, “the main constraint is people’s income,” and the “mild” rebound in consumer confidence that will result from the most recent measures

DEPOSITORS HIT Yu anticipates that the lower interest income on his deposits will partially offset the 1,000 yuan reduction in his mortgage payments.

He might invest some of his money in stocks and bonds in the hope of preserving his future returns.

However, others are more wary of taking risks, particularly as job uncertainty grows.

Even though he is dissatisfied with the lower interest rates, Shanghai-based data analyst Li Xiao says that he will keep the money in the bank.

Li stated, “The government wants to increase consumption, but the depositors will ultimately bear the costs.” Since people don’t have money to spend, cutting deposit rates won’t really work.”

On condition of anonymity, Guo, who works at a state-owned business in the southern province of Guangdong, stated that he intends to continue saving “even if deposit rates drop to zero.”

He stated, “People don’t have enough confidence, and the economy is bad.” It’s already a win to make sure you don’t lose the principal.

Nancy Yang, who works for a supplier of auto parts in Wuhan’s center, said that the main reason she isn’t spending her money is that her employer didn’t give out bonuses at the end of the year for 2022.

“I’m not saving for the low interest rate, but rather because there are too many unknowns: Yang mentioned unstable businesses, stagnant income, mortgage payments, and raising children.

“It’s really important to keep money.”