China's central bank announced significant measures to support its sluggish property sector and broader economy ahead of year-end growth targets. The People's Bank of China lowered the interest rate for its pledged supplementary lending (PSL) facility by 0.25 percentage points, bringing the one-year rate down to 1.5% from 1.75%. According to the central bank's announcement, the move aims to better incentivise policy banks to support the real economy and align with national strategic priorities. The PBOC will also broaden the PSL facility to support investment in water, power-grid, computing, communications, urban pipeline and logistics networks. The central bank stated that by cutting rates, it hopes to better incentivise banks and better serve national strategies, while maintaining ample liquidity and guiding interest rates to levels that support the real economy.
The central bank also increased the quota of relending for technological innovation by 200 billion yuan (about $29.84 billion), bringing the total to 1.4 trillion yuan. As reported by Reuters, this represents one of the bigger moves made this year by Chinese officials. The enhanced lending facility is designed to support technological innovation sectors and align with national development strategies. Additionally, the central bank raised the relending quota for farm and small businesses by 500 billion yuan to 4.85 trillion yuan and increased its relending quota for private enterprises by 300 billion yuan to 1.3 trillion yuan.
China's Ministry of Finance announced new mortgage interest subsidies for homebuyers effective from October 1. According to the joint announcement made by the People's Bank of China, the Ministry of Finance and the National Financial Regulatory Administration, the government will provide an annual interest subsidy of 1 percentage point for up to five years on qualifying loans, with the subsidised portion capped at 1 million yuan per household. To qualify for these subsidies, the purchased property must measure up to 120 square meters (1,292 square feet) in floor area and its price should be up to 1.5 million yuan ($224,000). The Ministry of Finance confirmed that these subsidies will be offered nationwide to support the housing market recovery.
China's housing slump has been a major drag on the economy, with new-home prices falling for more than three years straight. The country's growth has likely weakened further below the bottom end of the government's annual target in the third quarter after reaching 4.3% expansion in the previous three months. As reported by Reuters, consumption has flatlined and investment has fallen into a deeper slump. Chinese leaders are targeting a 4.5%-5% growth rate for the country's economy for the entirety of 2026, slower than last year's 5% growth. These measures come after the cabinet pledged to step up counter-cyclical policy support to address rising economic strains.
According to Gary Ng, senior economist for Asia Pacific at French bank Natixis, Tuesday's measures represent "a targeted approach with lower funding costs to support selected sectors through policy banks and the real estate sector." As reported by Reuters, these measures aim to support housing demand in lower-tier cities, which are still facing severe headwinds. China's cabinet promised in late September to introduce new measures to support the economy and study policies to stabilise the reeling property market, saying it will "put in place a package of practical and effective additional policies" to safeguard this year's economic goals.
