China Considers Forced Real Estate Stimulus... "Reviewing 180 Trillion Won Investment"

Demand Driven by Redevelopment Projects in Underdeveloped Areas
Concerns Over 'Bubble' Growth as Loans Are Eased for Developers

China is reportedly planning to inject 1 trillion yuan (approximately 180.13 trillion won) to address the real estate slump, which is the cause of the slowdown in economic recovery. This move is interpreted as the authorities directly intervening before the situation worsens further, aiming to prevent a sense of crisis from spreading throughout the economy.

On the 14th (local time), Bloomberg News cited sources reporting that China plans to provide 1 trillion yuan in funding for village renovations and affordable housing programs. According to the report, the People's Bank of China, the central bank, is expected to support this through a pledged supplementary lending (PSL) program, gradually injecting funds via policy banks.

[Image source=Yonhap News]

Sources said the government is considering additional loans and special loans as options and may take the first action as early as this month. As of last month, the outstanding PSL funds amounted to 2.9 trillion yuan, and with the injection of 1 trillion yuan, it is expected to reach an all-time high.

The news agency explained, "This is a new plan by Vice Premier Huai Feng and will be a significant advancement in the authorities' efforts to prevent the real estate downturn, which is weighing down economic growth and consumer confidence," adding, "Following record industry defaults, there are significant market concerns about the financial soundness of Chinese real estate developers."

The authorities are interpreted to first supply liquidity to developers through PSL, and then promote a kind of redevelopment project by purchasing outdated local land from local governments through developers, proceeding with demolition and new housing supply. Additionally, they plan to revive market demand by purchasing new homes in the form of subsidies for the original residents.

Bruce Pang, Chief Economist for Greater China at global real estate investment firm Jones Lang LaSalle (JLL), said, "This plan is not aimed at stimulating growth but rather providing more balanced development in the long term," adding, "It is expected that this funding will promote private investment and overall lead to direct investments exceeding 10 trillion yuan."

However, Bloomberg pointed out that the PSL program has been criticized in the past for inflating the real estate market bubble. It explained, "When closing the shantytown projects, the central bank mostly stopped providing new PSL funds in 2019."

Meanwhile, Chinese authorities have recently shown a different approach by announcing direct support policies for real estate developers. When Vanke, the second-largest developer, faced difficulties such as a sharp drop in corporate bond prices, the State-owned Assets Supervision and Administration Commission of Shenzhen, Guangdong Province, where its headquarters are located, expressed direct support and willingness to assist. Previously, when developers like Evergrande and Biguiyuan faced liquidity crises shaking the entire Chinese real estate market, the authorities had maintained a cautious stance. Biguiyuan defaulted last month by failing to pay interest on dollar bonds for the first time, and Evergrande is scheduled for liquidation hearings at a Hong Kong court next month.

This content was produced with the assistance of AI translation services.