China steps up financial support for economic recovery

China's monetary policy is providing vigorous support for the macroeconomy to withstand challenges from COVID-19 resurgences and external headwinds, the country's central bank governor said Monday.

By leveraging monetary instruments, the country has reduced financing costs for its real economy, with social financing and yuan-denominated loans sustaining an expansion, said Yi Gang, governor of the People's Bank of China (PBOC) while addressing the Annual Conference of Financial Street Forum 2022 in Beijing.

With support coming into play, a robust economic recovery is underway. Official data showed that China's GDP increased by 3.9 percent year on year in the third quarter of 2022, up from 0.4 percent in the second quarter.

"The current economic operation indicates that we have handled our macroeconomic policy appropriately," Yi said, adding that the policy has helped keep both economic fundamentals and prices stable.

EASING CASH CRUNCH

Chinese banks have made full use of inclusive finance to shore up cash-strained businesses.

In his speech at the forum, Yi said that as of late September, the balance of inclusive loans to China's small and micro enterprises reached 23 trillion yuan (about 3.21 trillion U.S. dollars). These loans covered nearly 54 million businesses, a quadruple increase from the end of 2017.

Besides nurturing small businesses, loan support also gives a shot in the arm to the country's mega infrastructure projects. A case in point is in north China, where three commercial banks have recently inked an agreement with companies devoted to the transport integration of the Beijing-Tianjin-Hebei region. As per the deal, the banks would issue loans worth 50 billion yuan to an array of transport projects, such as bullet train rails, intercity highways, and airport express services.

Under the aegis of the central bank, local financial institutions have helped the northern region attract outstanding financing of over 3 trillion yuan for its coordinated development over the past six years, the PBOC data showed.

With regard to the property industry, an underpinning of China's real economy, Yi said that the central bank has made multi-pronged efforts to bolster its development, and it encourages local governments' region-specific policies, such as lowering mortgage rates and advance payments for homebuyers.

The PBOC has also launched a 200-billion-yuan loan scheme to guarantee housing completion, with more policy tools being created toward the end, including the issuance of risk-sharing bonds to private property developers.

Amid efforts to stabilize economic growth, China's financial institutions are utilizing all types of financial tools that have effectively driven up demand for loans, said Wen Bin, chief economist with China Minsheng Bank.

"The country should allocate more financial resources to the key fields and weak links in its social and economic development, so as to meet the diverse demand from the people and the real economy," Wen said.

FINANCING GREENER FUTURE

China has announced that it will peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. Incentivized by the pledges, the country has evolved into a burgeoning market of green finance, which aims to finance the development of sustainable industries as well as the low-carbon transformation of traditional ones.

Data from the PBOC showed that China boasts the world's second-largest market of green bond, which stood at 1.2 trillion yuan as of the end of June.

Shedding light on financing the country's green shift, Yi said that the PBOC has introduced a carbon-reduction lending program, which, via financial institutions, channels loans to companies dedicated to the promotion of renewable energy, energy conservation, and carbon emission reduction.

Financial institutions are also required to calculate how much greenhouse gas these loans help reduce over time, thereby internalizing a green philosophy, said Yi.

"It is a good sign to see that the PBOC is integrating climate change into monetary policies," said Hugues de la Marnierre, Group Country Head for Societe Generale in China, at the forum. The French bank is one of the foreign banks included in the aforementioned PBOC lending program.

The program enables Societe Generale to support more carbon reduction projects, Hugues de la Marnierre said, adding that potential expansion to other areas, such as biodiversity preservation and energy transition, would also be welcomed, and many macro policies released by PBOC have demonstrated this trend.

By the end of September, the lending program had accumulated over 400 billion yuan of loans for carbon reduction, helping reduce emissions totaling more than 80 million tonnes, the central bank's data showed.

Li Yong, a chief analyst with Soochow Securities, said that thanks to regulatory backing as well as its ever-improving transaction mechanism and market structure, China's green bond market is likely to achieve a mutually-beneficial relationship between the supply and demand sides.

Looking ahead, Li called for more emphasis to be placed on assessing the quality of green bonds, so that market participants and capital are able to flow to the greenest parts of the economy.