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China injects US$50 billion into policy banks in financing push

In a move that could indicate a possible increase in funding for housing and infrastructure projects, the People's Bank of China (PBOC) pumped over US$50 billion into policy-oriented banks last month.

By the end of December, the outstanding amount of the PBOC's Pledged Supplemental Lending (PSL) program to policy banks had risen to 3.25 trillion yuan (S$602.5 billion), up from 2.9 trillion yuan the previous month, according to the central bank's announcement on Tuesday (Jan 2). To date, this mechanism has not seen a larger increase than the 350 billion yuan net infusion in November 2022.

Beijing sees the PSL programme as a vital weapon it may employ this year to stabilize development and strengthen the property sector. The market has been anticipating that the central bank will utilize the funds to fund the building of public housing, in an effort to reverse a consumer confidence-damaging multi-year property slump.

Policymakers are reportedly aiming to bring in one trillion yuan in low-cost central bank funding to support affordable housing and urban village redevelopment programs, according to a November Bloomberg News story. Government officials were contemplating utilizing the PSL scheme or securing special loans.

An affordable housing development project in the south-eastern province of Fujian was recently granted a loan by the China Development Bank, a policy bank that is motivated by government interests rather than profit. According to local media, the lender extended a credit line of 202 million yuan and loaned 10 million yuan to fund the building of 700 units.

A contentious past has dogged the PSL tool. The reconstruction of shantytowns repurposed it extensively from 2014 to 2019. While it did help to prevent a property recession, it also contributed to the bursting of housing price bubbles. It was referred to by some economists as "helicopter money" or "quantitative easing in the Chinese style" during that time.

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