PBOC may increase size of property funding tool
China’s central bank is likely to further expand the size of a targeted funding tool — pledged supplementary lending — to proactively back the struggling property sector, experts said after a PSL injection worth 350 billion yuan ($49.1 billion) last month.
The much-anticipated PSL operations are expected to effectively catalyze multiple investments in the real estate industry, bolster credit expansion and drive up firstquarter economic growth, they said.
The People’s Bank of China extended 350 billion yuan in loans to policy banks — lenders established to implement the government’s economic policies — through the PSL facility in December.
The China Development Bank, the Export-Import Bank of China and the Agricultural Development Bank of China were the recipients of the funding, the PBOC said on Tuesday, without disclosing details of how the banks will use the loans.
Bringing the outstanding balance of the PSL facility to 3.2522 trillion yuan, the move marks the first monthly increase in PSL loans since November 2022 and the third biggest single-month PSL injection on record, experts said.
Initiated in 2014, PSL is a monetary policy tool providing policy banks with low-cost and long-term funding, and was originally designed to support urban redevelopment.
Market data showed the interest rate of the PSL is now at 2.4 percent.
Ming Ming, chief economist at CITIC Securities, said the new PSL loans are likely to mainly fund investments in “three major projects” — construction of affordable housing, building of public infrastructure for both normal and emergency use, and redevelopment of shantytowns in cities.
The tone-setting Central Economic Work Conference, held in December, has called for accelerated efforts to advance the “three major projects”.
PBOC Governor Pan Gongsheng also said earlier that the central bank will provide medium to longterm low-cost funding support to these projects.
“The size of this round of PSL loans may exceed 350 billion yuan and further PSL injections may continue,” Ming said, as the abovementioned projects are still in need of large, low-cost funding.
Each yuan of PSL loans is estimated to catalyze about 2.5 yuan in investments, drawing on historical PSL effectiveness, Ming said, hence significantly boosting economic growth and boosting investor sentiment.
Zhu Haibin, chief China economist at JPMorgan, said the PBOC may use PSL and other policy tools to provide about 1 trillion yuan in funding to support affordable housing and shantytown redevelopment projects.
Zhu said this move should help China’s economic growth reach nearly 5 percent this year while possibly narrowing the annual decline in real estate investment to about 2-4 percent, compared with almost 10 percent in 2023.
In the first 11 months of 2023, the country’s total fixed-asset investment expanded by 2.9 percent, weighed down by a 9.4 percent decline in investment in real estate development, the National Bureau of Statistics said.
Tao Chuan, chief macroeconomic analyst at Shanghai-listed Soochow Securities, said PSL funding may have begun to generate effects in driving investment as the official purchasing managers index for the construction sector came in at 56.9 in December, well above the 50 mark that separates expansion from contraction and up from 55 in November.
Given that PSL operations are already channeling funds into the economy, the PBOC may not find it immediately necessary to reduce the reserve requirement ratio, another means of boosting liquidity, Tao said.
However, he said the central bank may lower benchmark interest rates through its mediumterm lending facility in the first quarter, in response to recent fluctuations in economic indicators.