The People’s Bank of China (PBOC) injected nearly US$50 billion worth of low-cost funds into policy-oriented banks last month, suggesting that the central bank may be ramping up financing for housing and infrastructure projects to support the economy.

The outstanding amount of the PBOC’s Pledged Supplemental Lending (PSL) programme to policy banks climbed to 3.25 trillion yuan (S$602.5 billion) at the end of December from 2.9 trillion yuan in the previous month, the central bank said on Tuesday (Jan 2). The net injection of 350 billion yuan was the largest increase via the tool since November 2022. 

The PSL programme is seen as an important tool in Beijing’s arsenal, which the government can use to shore up the property sector and stabilise growth this year. Markets have been expecting the central bank to use the money to drive construction of public housing in a bid to alleviate a multi-year property slump that has hammered consumer confidence.

Bloomberg News reported in November that policymakers were planning to provide one trillion yuan in low-cost central bank funding in phases to help programmes focused on affordable housing and the renovation of urban villages. Officials were considering using the PSL programme or special loans.

China Development Bank – one of the policy banks, which are driven by government priorities more than profits – extended a loan to an affordable housing construction project in the south-eastern province of Fujian last month. The lender issued a 10-million-yuan loan to support the construction of a 700-unit project, and committed an overall credit line of 202 million yuan, local media reported.  

The PSL tool has a controversial history. It was last used heavily between 2014 and 2019 for the rebuilding of shantytowns. That helped to halt a property slump but at the same time inflated home price bubbles. Some economists called it “helicopter money” or “Chinese-style quantitative easing” back then. 

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The programme was again briefly used at the end of 2022 to help policy banks such as China Development Bank provide funding to infrastructure projects, which totalled 740 billion yuan and drove even more investment. The PBOC provided about 500 billion yuan in PSL loans over the last three months of 2022. BLOOMBERG