China May Be Using Controversial Tool To Infuse Funds Into Policy Banks As It Seeks To Buckle Up Economy

China has reportedly utilized a controversial tool to inject funds into policy banks for the first time in over two years, as Beijing increasingly turns to semi-official lenders to boost the economy at a time when the monetary stimulus is limited by rising global interest rates.

What Happened: The People’s Bank of China added a net 108.2 billion yuan ($15.2 billion) in Pledged Supplementary Lending, or PSL, in September for China Development Bank, Agricultural Development Bank of China ACGBY and Export-Import Bank of China, reported Bloomberg, citing a statement posted by the central bank over the weekend.

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This is the first monthly increase in the tool since February 2020. It raised the outstanding value of PSL to 2.65 trillion yuan, said the report.

PSL was created by the Chinese central bank in 2014 to provide cash for policy banks to finance the shantytown renovation program, which aided in the turnaround of the property market downturn back then. It was criticized later for inflating the real estate bubble in lower-tier cities.

Expert Take: Xiaojia Zhi, an economist at Credit Agricole CIB in Hong Kong, told Bloomberg the funding boost from PSL could play a big role in the coming months to support credit to targeted areas, such as infrastructure, manufacturing and also low-income housing as well as the delivery of sold property projects.

Price Action: The Global X MSCI China Financials ETF CHIX has lost over 22% since the beginning of the year while the SPDR S&P China ETF GXC has shed over 30% in the same period.

Read Next: Why China's Central Bank May Find It Easier To Defend Yuan In Coming Weeks And Ease Currency Woes

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