China cuts PSL rate, offers homebuyer subsidy to prop up growth

China has rolled out rate cuts, targeted lending and mortgage subsidies to steady growth and housing demand. The measures signal a sharper policy push as weak property sales and slower expansion test this year's goals.

In Short

• Beijing trimmed PSL rates to channel cheaper credit through policy banks
• Relending for technological innovation rose by 200 billion yuan to 1.4 trillion
• First-time buyers get mortgage interest subsidies from October for five years

China on Tuesday announced a set of measures to support its economy and property market as pressure builds ahead of its year-end growth target. The steps include targeted bank lending, a cut in a key lending rate and fresh subsidies for first-time homebuyers' mortgage interest payments.

The move is among the bigger policy actions taken by Chinese officials this year. It comes as the economy has slowed and the property sector remains under strain, with Chinese leaders targeting 4.5 per cent to 5 per cent growth in 2026 after 5 per cent growth last year.

China's central bank, the People's Bank of China, said it will cut the interest rate on its pledged supplementary lending, or PSL, facility by a quarter of a percentage point, taking the one-year rate to 1.5 per cent. PSL is low-cost financing provided to major state policy banks to support state and public projects. The central bank said the rate cut is aimed at giving banks a stronger incentive and helping them better "serve national strategies".

The central bank also said it will raise the quota of relending for technological innovation by 200 billion yuan, or about USD 30 billion, taking the total to 1.4 trillion yuan, or USD 208 billion. Separately, the Ministry of Finance announced new mortgage interest subsidies for homebuyers. From October, eligible first-time buyers can get subsidies equal to an annualised rate of 1 percentage point on the mortgage principal for up to five years. To qualify, the home must have a floor area of up to 120 square metres and cost no more than 1.5 million yuan, or USD 224,000.

Gary Ng, senior economist for Asia Pacific at French bank Natixis, said Tuesday's steps represent "a targeted approach with lower funding costs to support selected sectors through policy banks and the real estate sector". For the property sector, they aim "to support housing demand in lower-tier cities, which are still facing severe headwinds", he added.

China's economy expanded 4.3 per cent in the April-June quarter, the slowest pace in more than three years. The property sector has been under pressure for years after a liquidity crunch in the real estate industry followed a crackdown by Chinese officials on excessive borrowing, with overall home prices falling by roughly 20 per cent or more compared with 2021.

Ng said the measures are likely meant to help China meet the minimum annual growth target. The announcements also came a day after China's State Council discussed strengthening and improving the effectiveness of macro policies in response to challenges in the economy. Taken together, the measures are aimed at lowering funding costs, supporting selected sectors and giving a lift to the housing market as China pushes towards its growth goal.

With PTI Inputs

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