THE People’s Bank of China (PBOC) provided 150 billion yuan (S$28.5 billion) worth of low-cost funds for lending to housing and infrastructure projects last month, stepping up support for the economy.

The outstanding amount of the PBOC’s Pledged Supplemental Lending (PSL) programme to policy-oriented banks 3.4 trillion yuan at the end of January, according to a central bank statement on Thursday (Feb 1).

The PSL programme is seen as an important tool for Beijing to support the economy and mitigate the impact from the worst property downturn on record. The cheap central bank money is for policy banks to lend to projects, which could help alleviate the decline in construction activities.

The PBOC increased the quota of PSL funds by 500 billion yuan for the so-called “major projects”, which include building government-subsidised housing and renovating run-down inner city districts, according to an article published by the central bank last month. It injected a net 350 billion yuan in December, which was the largest since November 2022.

While the programme will drive more credit and investment via construction projects, some analysts warned its impact may take time to manifest.

It is unlikely urban renovation projects will “lead to an immediate boost on credit and economic fundamentals” because it can take a long time for such big projects to be launched, Sinolink Securities analyst Fan Xinjiang wrote in a report on Friday.

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Fan forecasts the 500 billion yuan PSL funds could eventually drive new credit by as much as 1.5 trillion yuan, as the projects will receive more financing.

The interest rate on the PSL funds was lowered to 2.25 per cent by the end of December from 2.4 per cent in the previous quarter, according to PBOC data. That’s lower than the one-year policy rate of 2.5 per cent.

Authorities have stepped up policy support for the real estate sector recently, with plans to reveal the first list of housing projects eligible for financing.

Chinese cities including the southern metropolis Guangzhou also relaxed home purchase restrictions. But the market slump continues – new home sales from the 100 biggest real estate companies plunged 34.2 per cent from a year earlier in January.

Chinese policy banks have also issued their first batch of loans to such projects in cities such as Guangzhou and Shijiazhuang, according to local media reports. BLOOMBERG