China plans to provide at least 1 trillion yuan ($137 billion) of low-cost financing to the nation’s urban village renovation and affordable housing programs in its latest effort to shore up the struggling property market, according to people familiar with the matter.
The People’s Bank of China will inject funds in phases through policy banks with the money ultimately trickling down to households for home purchases, said the people, asking not to be identified discussing a private matter. Officials are considering options including the so-called Pledged Supplemental Lending and special loans, according to the people, adding that government may take the first step as soon as this month.
The plan, part of a new initiative by Vice Premier He Lifeng, would mark a major step-up in authorities’ effort to put a floor under the biggest property downturn in decades, which has weighed on economic growth and consumer confidence. Market concerns are mounting over the financial health of the nation’s largest developers after several of them have fallen into default.
China’s outstanding PSL stood at 2.9 trillion yuan as of October. A net injection of 1 trillion yuan of such lending facility will vault it past the previous record in 2019. The final amount of the new funding is subject to change, said the people.
Dubbed by some as “helicopter money," PSL allows the central bank to provide low-cost funds through policy and commercial lenders to the developers of the shantytown renovation projects. Developers then use the money to buy land from local governments, which in turn give cash subsidies to households whose old homes were demolished so they can purchase newly-built or existing apartments, driving up demand.
The latest plan comes as Beijing announced an unconventional fiscal stimulus last month, including raising the budget deficit with the issuance of additional 1 trillion yuan of sovereign bonds.
The world’s second-largest economy is still on a bumpy recovery path despite an improvement in the third quarter. Official data to be released Wednesday are expected to show economic momentum faltered in October even though headline numbers will likely look good relative to last year.
