The headquarters of the People's Bank of China in Beijing Photo: IC

China on Tuesday lowered the rate on a key central bank lending facility and introduced interest subsidies for new commercial mortgages aimed at eligible first-time homebuyers, part of a combination of policy measures aiming to promote innovation-driven, high-quality and sound economic development.

In a statement, the People's Bank of China, the central bank, said it will cut the pledged supplementary lending (PSL) rate by 25 basis points, bringing the one-year PSL rate down from 1.75 percent to 1.5 percent to better incentivize policy banks to support the real economy and serve national strategies.

The central bank said it will also expand the PSL facility to support investment in water, power-grid, computing, communications, urban pipeline and logistics networks, so as to guide policy banks to increase financial support for these sectors, help expand effective investment, and deeply tap into the potential of domestic demand.

The quota for the sci-tech innovation and technological upgrading relending facility was raised by 200 billion yuan ($29.84 billion) to 1.4 trillion yuan, and the relending quota for agriculture and small businesses was increased by 500 billion yuan to 4.85 trillion yuan, as the PBC said that the move will encourage banks to lend more to small and medium-sized tech firms and better support equipment renewal investment in key areas.

The central bank also raised its relending quota for private enterprises by 300 billion yuan, bringing the total to 1.3 trillion yuan. The adjustments to several monetary policy tools are in an effort to create a favorable monetary and financial environment for steady growth, high-quality development and stable financial markets, the central bank said.

These measures show that finance is actively aligning with national strategic needs, rather than just providing aggregate stimulus, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Tuesday.

The PSL's support scope has been widened to the "six networks" - water, power grids, computing, communications, urban pipelines and logistics networks - which are exactly the priority areas in the national strategy that have the greatest need for medium- and long-term funding, Dong said, adding that the moves would bring down financing costs, so that policy banks are both more motivated and more capable of supporting the real economy and national strategies. 

Meanwhile, the central bank and financial regulator announced on Tuesday that China will begin subsidizing interest payments on new commercial mortgages for eligible first-home buyers nationwide starting October 1. 

Under a statement released on the PBC's official website, qualifying loans will receive an annual interest subsidy of 1 percentage point for up to five years, with the subsidized portion limited to 1 million yuan per household. To qualify, homes must have a floor area of no more than 120 square meters and a purchase price of no more than 1.5 million yuan per household.

The central bank said the measures are to concretely help first-time homebuyer households, including migrant workers and other new urban residents, young people such as recent graduates, and urban salaried families, cut costs and ease burdens, enabling more people to own a home.

Global Times