All the tools the PBOC has to support China’s property sector
The PBOC’s latest tool is likely the most powerful so far, making 300 billion yuan (S$55.9 billion) of cheap credit available for banks to fund local-government purchases of unsold homes
THE People’s Bank of China is the key actor in Beijing’s intensifying effort to shore up the housing market, pumping in cash through a variety of programmes with more funds available if they’re needed.
The PBOC’s latest tool is likely the most powerful so far, making 300 billion yuan (S$55.9 billion) of cheap credit available for banks to fund local-government purchases of unsold homes. The goal is to chip away at the country’s excess housing stock and ease cashflow strains for developers.
The relending programme is just the latest in a series of facilities set up by China’s central bank to fight the slump – most of which are still in operation. Many of them have had teething troubles: A pilot plan launched in eight cities last year saw limited interest from banks and local governments.
What’s more, economists think the overall amount of central-bank credit on offer still isn’t enough to get the job done. Bloomberg Economics says the latest programme could double in size before the end of this year. Investors are hoping that as much as 3 trillion yuan of financing will eventually be unleashed, BNP Paribas analysts wrote last month. They said everything the PBOC has done so far is “probably just the beginning.”
China is mobilising commercial banks for the housing rescue too. State-backed developer China Vanke is in advanced talks with lenders for a 50 billion yuan credit, weeks after getting a 20 billion yuan syndicated loan. Those offers came after financial regulators instructed banks to support Vanke, as concern grew among investors that the giant developer was facing a liquidity crunch and could default.
Still, the PBOC is front and centre of the bailouts. From Bejing’s point of view, using monetary tools – as opposed to injecting government money directly via fiscal spending – has some key advantages. Central bank lending programmes can be scaled up rapidly, allowing authorities to respond in the event of a sharper downturn. By comparison, raising funds via government bond sales needs approval by the national legislature, which sets annual issuance plans at the beginning of each year.
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The International Monetary Fund suggests China may need fiscal tools too. It says Beijing should provide financing to help developers complete pre-sold and unfinished housing projects, or compensate people who bought them. That would “pave the way for exit of insolvent developers from the property market,” IMF First Deputy Managing Director Gita Gopinath said in the Chinese capital on Wednesday (May 29).
Here’s a look at the different levers the PBOC has available to support the housing market.
Affordable Housing Relending
- Quota: 300 billion yuan
- How it works: Banks provide loans for local governments to buy finished and unsold apartments. For each loan granted, the PBOC provides 60 per cent of the principal at an interest rate of 1.75 per cent.
- Condition: Local authorities must rapidly convert the apartments into subsidised housing for rent or quick sale.
- Scope: 21 national banks and all cities, on a voluntary basis
The programme will incorporate a pilot scheme in eight cities that had a quota of 100 billion yuan. PBOC statements and media reports suggest that only a small part of it has been used. Investors may not get an update on the new programme’s progress until July, when the PBOC usually publishes a second-quarter breakdown of its targeted tools.
Pledged Supplemental Lending (PSL) for ‘Three Major Projects’
- Amount issued: 500 billion yuan
- How it works: Three policy-oriented banks lend to projects for building affordable housing, renovating urban villages and constructing public facilities in cities. The PBOC provides 100 per cent of the principal at a rate of 2.25 per cent (as of March) to the lenders, which pledge high-grade bonds or loans as collateral. Unlike the relending facility, the PBOC supplies credit upfront in this programme, and it’s not clear how much of the cash has been lent on for housing projects.
- Scope: China Development Bank, Export-Import Bank of China, Agricultural Development Bank of China
The Pledged Supplemental Lending programme helped engineer a turnaround after China’s last housing downturn in 2015, and until a few months ago was seen as an important tool this time as well. But its impact has proved to be limited, perhaps in part because policymakers are increasingly focused on finding buyers for unsold homes rather than building new ones.
The “three major projects” contributed 0.6 percentage point to property investment growth in the first quarter of this year, according to the National Bureau of Statistics – not enough to move the needle. Real estate investment still plunged almost 8 per cent from a year ago. By comparison, between 2015 and 2018 a shantytown redevelopment project funded by the PSL programme contributed about 15 per cent of all housing investment in the period, according to BNP Paribas.
Relending for Housing Project Delivery
- Amount issued: 9 billion yuan (as of March)
- Quota: 200 billion yuan
- How it works: Banks provide loans to delayed residential housing projects for their timely delivery. The PBOC provides lenders with funds equal to 100 per cent of the loan principal at no cost.
- Scope: Six to 18 national banks
Introduced in December 2022, the programme was part of a concerted effort to ensure unfinished homes are completed. Another similar programme launched the same year was the “special loans” granted by policy banks to stalled projects. Almost all the 350 billion yuan available under that program had been deployed by the end of last year, according to the financial regulator.
Relending for Real Estate M&As
- Amount issued: 21 billion yuan (as of March)
- Quota: 80 billion yuan
- How it works: China’s five biggest bad-debt management companies conduct mergers and acquisitions for projects of troubled developers. The PBOC provides funds equal to 50 per cent of their actual investment at a rate of 1.75 per cent
The programme set up in January 2023 has expired, according to the latest breakdown of structural tools released by the PBOC in April. The limited takeup was likely due to concern about potential losses among the debt management firms, which see such mergers as highly risky in a worsening housing market. BLOOMBERG
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