China is reportedly planning to offer at least 1 trillion yuan ($137 billion) in low-cost financing for urban village renovation and affordable housing programs. This move is intended to support the struggling property market.

The People’s Bank of China is expected to provide the funds in stages through policy banks, with the ultimate goal of benefiting households for home purchases. Sources familiar with the matter, who requested anonymity, mentioned that options being considered include Pledged Supplemental Lending and special loans, adding that the government may take the initial steps as early as this month.

The plan, part of a new initiative by Vice Premier He Lifeng, would mark a major step up in authorities’ effort to put a floor under the biggest property downturn in decades, which has weighed on economic growth and consumer confidence. Market concerns are mounting over the financial health of the nation’s largest developers after several of them have fallen into default.

China’s outstanding PSL stood at 2.9 trillion yuan as of October. A net injection of 1 trillion yuan of such lending facility will vault it past the previous record in 2019. The final amount of the new funding is subject to change, said the people.

The PBOC didn’t immediately respond to a request for comment.

Dubbed by some as “helicopter money,” PSL allows the central bank to provide low-cost funds through policy and commercial lenders to the developers of the shantytown renovation projects. Developers then use the money to buy land from local governments, which in turn give cash subsidies to households whose old homes were demolished so they can purchase newly-built or existing apartments, driving up demand.

State-owned developers such as China Resources Land Ltd. were among the biggest beneficiaries from the previous expansion of the affordable housing projects.

The PSL program, however, is a controversial tool. Created in 2014, it was used to turn around a property market downturn then, but was heavily criticized later for inflating the real estate bubble in lower-tier cities.

The central bank largely stopped providing new PSL funds in 2019 as the shantytown project wrapped up. But it was relaunched briefly last year to help the policy banks — which are less profit-driven than state lenders — provide financing for infrastructure development.

The latest plan comes as Beijing announced an unconventional fiscal stimulus last month, including raising the budget deficit with the issuance of additional 1 trillion yuan of sovereign bonds.

The world’s second-largest economy is still on a bumpy recovery path despite an improvement in the third quarter. Official data to be released Wednesday are expected to show economic momentum faltered in October even though headline numbers will likely look good relative to last year.

Source: Mint