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MNI SOURCES: China To Look To 3 Big Policy Banks For Stimulus

     BEIJING(MNI) - China will look to its three big policy banks to boost
support for investment as its economic growth fell to a record low in the third
quarter of the year, sources familiar with macro policies told MNI.
     "When economic headwinds get stronger, the policy banks, supported with
sovereign credit, will play a more active role in boosting infrastructure
investment, as they can raise capital by issuing long-term and low-interest
bonds," a source said, "Monetary and fiscal authorities are expected to allow
them more leeway to further expand credit."
     In September, the People's Bank of China restarted the Pledged
Supplementary Lending scheme it uses to inject funds into the three banks for
the first time in five months, providing a net CNY24.6 billion to take the total
outstanding to CNY3.52 trillion. Much of the money provided to the policy banks
via this facility has been used for shantytown development.
     China Development Bank, Agricultural Development Bank of China and
Export-Import Bank of China -- with total assets of CNY27 trillion as of the end
of 2018 -- have been at the forefront of all major Chinese stimulus packages.
     The policy banks could issue bonds to finance construction projects,
another source said. From 2015 to 2016, the CDB and ADB reportedly issued about
CNY2 trillion of bonds for government-backed infrastructure projects, assisted
by a Ministry of Finance subsidy that covered 90% of their interest payments.
The programme was eventually halted because it was feeding a rise in local
governments' implicit debt, but it could be restarted thanks to tightened
regulation on financial sector and local government implicit debt, the source
     The banks could also provide loans to projects started with funds from
local governments' infrastructure-backed special purpose bonds, the source said.
Commercial banks have been reluctant to lend to such projects, due to concerns
over risk and low returns.
     Both sources stressed that policy banks should select projects only after
proper due diligence and that most of the finance provided for the projects
should come from private investors.
     Local government implicit debt, concentrated in local government funding
vehicles, could total CNY30 trillion to CNY60 trillion, according to both
official and unofficial think tanks, who consider it a potential danger to
central government finances.
     "Policy banks could also make efforts to deal with this debt. It has been
reported that the CDB has provided low-cost loans to some firms in order to help
keep this problem under control," the third source said, "The government needs
to step in, or a default will occur with spillover effects with significant
consequences for markets. That would buy some time for reform of
local-government financing vehicles."
     China's gross domestic product grew by 6% in the third quarter of 2019, the
lowest since records were first kept in March 1992.
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MC$$$$,MT$$$$,MX$$$$,M$$CR$,MGQ$$$]

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