Bogged down: A residential complex in Beijing. Some observers think the PBoC will double its aid package to revive the property sector before the end of this year. — AFP
BEIJING: The People’s Bank of China (PBoC) 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 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.
That re-lending 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 said the latest programme could double in size before the end of this year.
Investors are hoping that as much as three trillion yuan of financing will eventually be unleashed, BNP Paribas SA 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 Co 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.
The International Monetary Fund (IMF) 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 last Wednesday.
Here’s a look at the different levers the PBoC has available to support the housing market.
Affordable housing re-lending
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.
PSL for ‘three major projects’
The Pledged Supplemental Lending or PSL 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% from a year ago. By comparison, between 2015 and 2018 a shantytown redevelopment project funded by the PSL programme contributed about 15% of all housing investment in the period, according to BNP Paribas.
Re-lending for housing-project delivery
Introduced in December 2022, the programme was part of a concerted effort to ensure unfinished homes are completed.
Another similar program launched the same year was the “special loans” granted by policy banks to stalled projects. Almost all of the 350 billion yuan available under that programme had been deployed by the end of last year, according to the financial regulator.
Re-lending for real estate M&A
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
