China is reportedly considering injecting a minimum of 1 trillion yuan ($137 billion) into its urban village renovation and affordable housing programs to revitalize its struggling property market, according to sources familiar with the matter cited by Bloomberg on Tuesday.
The People’s Bank of China intends to funnel these funds through policy banks with the goal of supporting households in their pursuit of home purchases. This move, led by Vice Premier He Lifeng, reflects a robust effort to counter the profound slump in the property sector, a downturn that has significantly impacted economic growth and consumer confidence.
The proposed initiative involves utilizing financial instruments such as Pledged Supplemental Lending (PSL) and special loans. If implemented, this program could represent a significant step in the government’s comprehensive strategy to stabilize the housing market, considered the most severe downturn in decades.
Market concerns have escalated regarding the financial health of China’s prominent developers, especially after a series of record defaults within the industry. The injection of funds aims not only to rejuvenate the property market but also to foster a more balanced and sustainable development trajectory for the long term.
The PSL program, sometimes referred to as “helicopter money,” enables the central bank to provide low-cost funds to developers involved in tenement renovation projects. This involves developers using the funds to acquire land from local governments, which then offer cash subsidies to households affected by demolitions, stimulating demand for newly-built or existing apartments.
Analysts suggest that the funding could generate over 10 trillion yuan in overall direct investment, driving private investment in the sectors. Bruce Pang, Chief Economist for Greater China at Jones Lang LaSalle Inc., emphasized, “This is not to spur growth but rather deliver a more balanced development for the longer term.”
However, it is noteworthy that the PSL program has a controversial history. Initially deployed in 2014 to counter a property market downturn, it faced criticism for contributing to a real estate bubble in lower-tier cities. The central bank reduced its provision of new PSL funds in 2019 as projects concluded. However, the program experienced a brief re-launch last year to assist policy banks, which prioritize public service over profit, in financing infrastructure development.
This latest plan follows Beijing’s unconventional fiscal stimulus announced last month, including a budget deficit increase through the issuance of an additional 1 trillion yuan in sovereign bonds. While economic data for the third quarter suggested a gradual recovery, official data anticipated to be released on Wednesday is expected to reveal a faltering economic momentum in October.
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