China Injects $50 Billion Into Some Banks | PaySpace Magazine (2024)
Last month, the People’s Bank of China injected almost $50 billion into policy-oriented lenders.
The media suggests that the central bank of the mentioned Asian country is currently increasing the volume of financing for infrastructure and real estate projects.
The outstanding amount of the People’s Bank of China’s promised program of pledged supplemental lending secured by financial institutions implementing policy increased to 3.25 trillion yuan ($456 billion) at the end of December from 2.9 trillion yuan in the previous month. The relevant information is contained in the statement of the central bank of the Asian country, released on Tuesday, January 2. The net injection of funds worth 350 billion yuan was the largest increase using this instrument since November 2022.
The program of the People’s Bank of China for pledged supplemental lending is considered an impact mechanism, the use of which will allow the government of the Asian country to improve the situation in the real estate sector, which is in a state of crisis, and stabilize economic growth. The markets expected that the financial regulator would direct funds to stimulate the building of public housing. Experts said that this action could help mitigate the decline in real estate values that have been observed for several years. This trend is a negative circ*mstance that reduces the level of consumer confidence.
In November, the media reported that the Chinese authorities intend to gradually provide 1 trillion yuan of central bank financing to support programs aimed at building affordable housing and reconstructing urban villages. Officials were exploring the possibility of using the People’s Bank of China’s pledged supplemental lending program or special loans for appropriate purposes.
Xing Zhaopeng, Senior China Strategist at Australia & New Zealand Banking Group Ltd., says that the specified program of the financial regulator is the most direct and effective way to transfer funds to the economy. According to the expert, this is a very important tool for the economic system of an Asian country. Xing Zhaopeng noted that the positive effect of the pledged supplemental lending program will grow if its financial volume reaches 1 trillion yuan. The expert also says that this tool can replace some other forms of incentives.
Xing Zhaopeng estimates that the People’s Bank of China is unlikely to reduce the required reserves of financial institutions in the first quarter of 2024. The expert explains his point of view on this issue with abundant cash injections through the pledged supplemental lending program and one-year policy loans.
Xing Zhaopeng predicts that China’s official budget deficit will be 3% in 2024. At the same time, the markets expect that the corresponding indicator will be fixed at more than 3.5%. The expert noted that the funds provided under the pledged supplemental lending program can be described as quasi-fiscal calculations at the expense of the official budget of the Chinese government.
The mentioned program of China’s financial regulator has a controversial history. This tool was actively used in the period from 2014 to 2019. During these five years, the financial regulator’s program stopped the decline in housing prices, but at the same time inflated cost bubbles in the relevant market. Some experts have characterized the use of the instrument from 2014 to 2019 as so-called helicopter money or Chinese-style quantitative easing.
At the end of 2022, there was a short-term use of the pledged supplemental lending program. This decision was made to support state-owned banks such as the China Development Bank to provide financing for infrastructure projects. The total volume of money allocated at the end of 2022 amounted to 740 billion yuan.
The Development Bank of China is one of the strategic lenders of the Asian country, whose activities are more determined by the priorities of the government, rather than the desire to achieve profitability. Last month, this financial institution provided a loan for the implementation of a project to build affordable housing in the southeastern province of Fujian. The media reports that in this case, the Development Bank of China has committed a total credit line of 202 million yuan.
The interest rate under the additional lending program as of the end of September was 2.4% in China. This indicator is lower than the one-year policy rate and the benchmark lending rate of banks.
As we have reported earlier, China’s Biggest Banks Lower Deposit Rates.
The People's Bank of China (officially PBC or unofficially PBOC) is the central bank of the People's Republic of China. It is responsible for carrying out monetary policy as determined by the People's Bank Law and the Commercial Bank Law.
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) injected nearly US$50 billion worth of low-cost funds into policy-oriented banks last month, suggesting that the central bank may be ramping up financing for housing and infrastructure projects to support the economy.
China has six state-owned commercial banks. These banks are ranked by their Tier 1 capital amount as of 2018. Banks with asterisks (*) are the four major state-owned banks (i.e. the "Big Four" banks). Bank of Communications was founded in 1908.
The RRR — which determines the amount of cash banks have to keep in reserve — will be lowered by 0.5 percentage points on Feb. 5 to provide 1 trillion yuan ($139 billion) in long-term liquidity to the market, the People's Bank of China's Governor Pan Gongsheng told reporters at a briefing.
The PBOC announced a 50-basis points cut in the RRR in January, the biggest in two years, and analysts believe at least one more reduction may be on the cards this year as policymakers try to boost growth.
Specialized Banks: These are the big four banks that are majority-owned by the government and are central to China's financial system. They are the Industrial and Commercial Bank of China (ICBC), the China Construction Bank (CCB), the Bank of China (BoC), and the Agricultural Bank of China (ABC).
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Among the 41 locally incorporated foreign banks in China, there are eight from the U.S. that operate about 80 branches and representative offices in China. Prepared by our U.S. Embassies abroad.
As the oldest and largest Chinese bank in the U.S., Bank of China U.S.A. provides comprehensive services for financial institutions in the U.S. and Greater China, leveraging our expertise and network in and across both markets.
JPMorgan Chase & Co. is an American multinational financial institution headquartered in New York City and incorporated in Delaware. It is the largest bank in the United States and the world's largest bank by market capitalization as of 2023.
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The Bank of China (BOC; Chinese: 中国银行; pinyin: Zhōngguó Yínháng) is a Chinese majority state-owned commercial bank headquartered in Beijing and one of the very largest banks in the world.
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