MNI: PBOC To Offer More Targeted Tools, Expand Balance Sheet

The People’s Bank of China will expand its balance sheet in 2024 to offer more structural tools targeted at weak and risky sectors such as the property market which it deems crucial to achieve the 5% GDP growth target, policy advisors and economists told MNI.

The central bank wants to address structural issues, particularly to help real-estate developers grappling with low liquidity, said Lian Ping, chairman at the China Chief Economist Forum. He noted the PBOC will likely further facilitate refinancing of developers via credit support and non-bank funding channels such as bonds, equity and trust funds.

In addition, the Bank will further boost credit by maintaining total social financing growth at over 10%, which will help the economy reach a 5% GDP target next year, Lian predicted, noting any balance-sheet expansion should occur at an appropriate pace. He expects the property sector to remain weak in early 2024 and require more policy support. (See MNI: China Stimulus To Keep 2024 Growth Over 5%, Advisors Say)

Outstanding structural policy tools totalled CNY7 trillion at the end of September – 15% of the bank’s balance sheet, PBOC Governor Pan Gongsheng said in a recent speech, noting the central bank will focus on its role to support key sectors.

Gao Xingwei, economics professor at the Party School of the CPC Central Committee, said the property sector has become policymakers’ biggest headache and the PBOC must meet the industry’s appetite for credit and boost developers’ confidence following the Evergrande collapse while supporting high-quality growth. (See MNI: China Likely To Ease Developer Borrowing Restrictions）

The PBOC should enhance its control of funds flowing into the property sector, said Chen Sheng, head at the China Real Estate Data Academy, noting that total financing to the sector has now fallen below CNY60 trillion, less than the CNY60-90 trillion that would be more economically appropriate.

THREE NEW REQUIREMENTS

Financial regulators set three new requirements for real-estate loans last month aimed at encouraging lending and maintaining growth at industry averages, media reported. Lenders’ real-estate loan growth should not fall below the banking sector’s average growth rate, while loans to non-state-owned developers must increase by at least the same pace as their own real-estate loans. Mortgages secured against houses developed by non-state-owned developers must also match growth in banks’ general mortgage books.

An official at a joint-stock bank confirmed his institution was preparing to implement the requirements to help provide liquidity to developers, particularly non-state-owned companies. Banks, however, are struggling to absorb the risk, he explained.

Chen said the new requirements will address the sharp contraction of developer bank loans, which account for about 50-60% of the sector’s total financing. The previous strict control had diminished financial institutions’ appetite for property-sector risk, he noted.

PSL POSSIBILITY

An advisor who asked for anonymity told MNI the PBOC’s Pledged Supplementary Lending (PSL) facility could provide about CNY1 trillion to three policy banks – China Development Bank, Agricultural Development Bank and Export-import Bank of China – to finance urban village renovation and affordable housing programmes.

The targeted PSL provides loans to policy banks for re-lending and requires borrowers to lodge collateral. Lenders could use the low-cost and long-term PSL as capital for the urban renewal programme and leverage the funds four-five times, the advisor said.

Chen estimated the urban village programme would generate about CNY3 trillion investment over five years, adding to that already committed to affordable housing, which will lift the property sector. More focused policy should reverse expectations and help revitalise the industry in the second half next year, he said.

However, advisors and economists agreed the market will not receive significant stimulus like that offered between 2016-2020 when the PBOC injected CNY3.29 trillion via the PSL to support the shantytown redevelopment project.

The advisor said urban village renovations will not make a significant impact on the property sector due to the difficult local government fiscal situation and private sector’s hesitation to invest.