What’s new: China’s central bank added 500-billion-yuan ($70 billion) worth of low-cost loan quota for policy-oriented banks in 2023 to ramp up financing for housing and infrastructure projects and bolster the economy, according to a report by the People’s Bank of China.
By the end of December, the outstanding amount of the PBOC’s Pledged Supplemental Lending (PSL) program to policy banks was 3.25 trillion yuan, an increase from 2.9 trillion yuan in the previous month, according to data released by the central bank. The monthly net injection of 350 billion yuan was the largest increase via the program since November 2022.
The funds were handed out to the country’s policy lenders, including the China Development Bank, the Export–Import Bank of China and the Agricultural Development Bank of China, to finance affordable housing and urban renovation projects and invigorate the housing market. About 150 billion yuan of the PSL quota remains to be allocated, said the PBOC in an article published on its official WeChat account.
The context: The PSL program is seen as an important tool in Beijing’s arsenal to support growth of the world’s second largest economy. Since its creation in 2014, the PBOC has used PSL to inject money into the economy through loans to policy banks for specific purposes such as shantytown redevelopment, underground pipeline construction and major water conservancy projects.
The policy banks enjoy a low interest rate and usually pledge high-rated bonds and high-quality credit assets as collateral.
The PSL tool has a controversial history. It was last used extensively between 2014 and 2019 to fund the rebuilding of shantytowns. While it helped arrest the property downturn, it was criticized later for allowing local governments to accumulate hidden debt as well as driving up house prices and inflating real estate bubbles in lower-tier cities.
The relaunch of PSL suggests that Beijing is relying on the policy banks to lift the economy from a deepening property crisis, an investment slowdown and growing financial distress among companies and local governments.
Contact reporter Han Wei (weihan@caixin.com)
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