Beijing stepping up support for policy lenders

Bloomberg and Reuters

China used a controversial tool to inject funds into policy banks for the first time in more than two years.

Beijing increasingly relies on the semi-official lenders to support the economy while monetary easing is constrained by rising global interest rates.

The People's Bank of China added 108.2 billion yuan (HK$118.8 billion) in Pledged Supplemental Lending last month for China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China, said a statement by the central bank over the weekend.

That marked the first monthly increase in the tool since February 2020 and took the outstanding value of the lending to 2.65 trillion yuan.

The PBOC created PSL in 2014 to provide cash for policy banks to finance the shantytown renovation program, which helped turn around a property market downturn back then, but was heavily criticized later for inflating the real estate bubble in lower-tier cities.

The relaunch of the tool suggests the government is seeking every possible way to expand the funding source for policy banks. Beijing in recent months has focused on stimulus via policy lenders, given that fiscal spending is limited by stretched local government finances and further monetary loosening is hard to deliver due to rate increases in the US and elsewhere.

The funding boost from PSL "could play a big role in coming months to support credit to targeted areas, such as infrastructure, manufacturing and also low-income housing, as well as the delivery of sold property projects," said Zhi Xiaojia, an economist at Credit Agricole CIB in Hong Kong.

The State Council in late August unveiled a plan including another 300 billion yuan for policy banks to invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June.

Those funds are in addition to the 800 billion yuan the three policy banks were told in June to lend for infrastructure projects.

Separately, the PBOC said it has extended its bilateral currency swaps with the European Central Bank, worth 350 billion yuan or 45 billion euros.

The swaps' extension will help deepen bilateral cooperation and safeguard financial market stabilization, the central bank said.