China’s 1 Trillion Yuan Initiative to Stabilize Property and Boost Confidence

Bruce Pang, Chief Economist for Greater China at Jones Lang LaSalle Inc., stated that this initiative is not solely intended to spur growth but rather aims to deliver a more balanced development in the longer term. Pang anticipated that the funding would drive private investment in the sectors and result in over 10 trillion yuan in overall direct investment.

China is reportedly planning a substantial financial injection of at least 1 trillion yuan ($137 billion) into urban village renovation and affordable housing programs. This move by the People’s Bank of China is aimed at revitalizing the struggling property market, which has faced its most significant downturn in decades, impacting economic growth and consumer confidence.

The funding would be provided in phases through policy banks, with the ultimate goal of supporting households for home purchases. Various options are under consideration, including Pledged Supplemental Lending (PSL) and special loans. The initiative is part of a broader effort led by Vice Premier He Lifeng to stabilize the property market amid growing concerns about the financial stability of major developers following record defaults in the industry.

As of October, the outstanding amount of funds lent through the PSL program stood at 2.9 trillion yuan. A net injection of 1 trillion yuan would surpass the previous record set in 2019. The final amount of new funding is subject to change.

The PSL program, sometimes referred to as “helicopter money,” allows the central bank to provide low-cost funds through policy and commercial lenders to developers involved in shantytown renovation projects. Developers utilize these funds to purchase land from local governments. In return, local governments provide cash subsidies to households whose old homes were demolished, enabling them to purchase newly built or existing apartments and thereby driving up demand.

Bruce Pang, Chief Economist for Greater China at Jones Lang LaSalle Inc., stated that this initiative is not solely intended to spur growth but rather aims to deliver a more balanced development in the longer term. Pang anticipated that the funding would drive private investment in the sectors and result in over 10 trillion yuan in overall direct investment.

State-owned developers, including China Resources Land Ltd., were among the primary beneficiaries of the previous expansion of affordable housing projects. The PSL program, however, has been a source of controversy. Initially deployed in 2014 to counter a property market downturn, it faced criticism later for contributing to a real estate bubble in lower-tier cities.

The central bank largely discontinued providing new PSL funds in 2019 as the shantytown project concluded. It was briefly relaunched last year to assist policy banks, which are less profit-driven than state lenders, in providing financing for infrastructure development.

This latest plan follows Beijing’s announcement of an unconventional fiscal stimulus last month, including an increase in the budget deficit through the issuance of an additional 1 trillion yuan of sovereign bonds.

Despite signs of improvement in the third quarter, the world’s second-largest economy is still navigating a challenging recovery path. Official data expected to be released shortly is anticipated to show that economic momentum faltered in October, even though headline numbers are likely to appear positive relative to the same period last year.

In response to the report, the onshore yuan rebounded, paring all of the day’s declines to 7.288 per dollar. The yield on the benchmark 10-year government bond rose 1.75 basis points to 2.6625%, heading for the most significant increase in three weeks. The FTSE A50 Index Futures rose as much as 0.5% after the market close on Tuesday. The People’s Bank of China did not immediately respond to the request for comment.