NBC governor emphasizes use of special loans and support bonds to keep China’s real estate market afloat

China’s central bank chief has outlined the use of special loans and bond issuance to keep China’s recently beleaguered real estate sector on an even keel.

“There are currently some adjustments in the real estate market and we are working with the relevant authorities and governments to effectively use a set of policy tools in each city, reducing property loan rates and down payments. ratios and supporting inelastic and improving housing demand,” Yi Gang (易纲), governor of the People’s Bank of China (PBOC), said during speech announced on November 21 at the annual Financial Street 2022 Forum (2022金色街设计年会) in Beijing.

And he highlighted recent measures, including the provision of 200 billion yuan in special loans to ensure the completion of pre-sold real estate projects to home buyers, as well as the launch of structured policy instruments to encourage Chinese banks to support the completion of such projects.

The NBK also expanded the use of bond issuance for private real estate enterprises to provide them with financial support and spread the burden of risk.

According to Yi, the monetary policy support measures announced by the NBK since the start of the Covid pandemic have not had a negative impact on the health of its balance sheet.

“Despite the fact that we have expanded the intensity of support for the real sector of the economy, in recent years the balance sheet of the NBK has remained relatively stable in terms of its volume,” said I.

“As of the end of September, the total size of the PBOC’s balance sheet was about 40 trillion yuan, representing an average annual growth of 2.6% over the past five years.

“Since 2018, we have reduced the required reserve ratio 13 times, bringing the average required reserve ratio down from 15% to about 8% and freeing up about 10.8 trillion yuan of long-term funds.

“The PBOC’s balance sheet has been largely stable, ranging from 38 to 40 trillion yuan, while China’s M2 money supply balance has increased from 170 billion yuan at the end of 2017 to more than 260 trillion yuan currently… supporting China’s monetary- credit policy because the real economy was stable.”

And he emphasized the key role of the required reserve ratio and structured instruments of monetary policy in the NBK’s implementation of economic adjustments.

“Over the recent period, the relatively high required reserve ratio has made an important contribution to the stability of the Chinese currency and the prevention of inflation,” he said.

“Over the past few years, we have made extensive use of techniques including reserve ratio reductions, open market operations and structured monetary policy instruments to proactively release and adjust flows.

“This represents a major change compared to the passive release of cash in foreign currency. The independence of monetary policy has increased significantly.

And he also noted that the PBOC uses tools to support the reduction of carbon emissions to stimulate China’s environmental development.

“These tools support marketing principles to support financial institutions in lending to businesses in three key areas: clean energy, energy efficiency and emissions reductions, and carbon reduction technologies.

“As of the end of September, carbon support instruments have provided more than 240 billion yuan of funds, and carbon support credits have exceeded 400 billion yuan, resulting in the reduction of more than 80 million tons of carbon dioxide emissions.”