In a strategic move to bolster its economy amid challenges, the People’s Bank of China (PBOC) injected a substantial lifeline of 800 billion yuan ($112 billion) in one-year loans to commercial lenders, according to a recent Bloomberg report.
This injection, which exceeded analysts’ expectations, marked a doubling of the anticipated amount, surpassing the previous month’s infusion. The PBOC’s decisive action reflects its commitment to shoring up the Chinese economy, grappling with a housing slump and subdued demand.
Throughout the year, China has faced economic difficulties, including a slower-than-expected recovery from stringent Covid Zero policies and an escalating property crisis. Despite mixed economic data, with industrial production exceeding expectations but retail sales falling short in November, the nation remains cautious about its growth recovery.
The PBOC’s sustained support emphasizes Beijing’s dedication to maintaining ample liquidity. This follows China’s earlier move in October to raise the fiscal deficit ratio to a three-decade high and permit the sale of an additional 1 trillion yuan in sovereign bonds within the year. Recent episodes of cash tightness due to seasonal factors and debt issuance had unsettled investors, making the PBOC’s intervention crucial for stability.
Notably, the PBOC injected 1.45 trillion yuan through its medium-term lending facility on Friday, surpassing the 650 billion yuan coming due in December. Concurrently, Chinese authorities eased homebuying restrictions in Beijing and Shanghai, aligning efforts to counter an unprecedented housing downturn. Beijing reduced the down-payment ratio for second homes, mirroring a similar move by Shanghai.
Debates among traders have ensued regarding how the PBOC should ease its policy to stimulate growth. Some advocate for targeted tools like Medium-Term Lending Facility (MLF) injections, while others suggest a reduction in the reserve requirement to release cheaper and longer-term funding.
Fiscal stimulus is expected to play a more significant role in the coming year, with China’s policymakers calling for “appropriately stepped up” fiscal measures and “prudent” monetary policy. This aligns with a pro-growth stance from a recent Politburo meeting.
The market responded positively to the liquidity injections and additional support measures, with China stocks experiencing a surge. The Hang Seng China Enterprises Index recorded an increase of more than 3%, and the yuan recovered losses In onshore trading.
As China navigates economic challenges, the PBOC’s bold and substantial injection aims to provide stability and foster sustained growth.