When China allowed banks to use 700 billion yuan ($108 billion) more of their deposits on Sunday, they were very clear on where the money should go.
One sector not mentioned was the overheating property market.
Money freed up from previous cuts may have ended up flowing into the housing market, and the design of this new policy seems aimed at preventing that, said Fan Ruoying, a researcher at the Bank of China’s International Institute of Finance in Beijing.
Loans to property developers and household rose 20.3 percent in the first quarter compared with a year ago, and the pace was faster than the overall loan expansion, Fan wrote in a note.
Previous Cuts May Have Flowed to HousingPrices of newly built residential buildings
Source: Bloomberg Intelligence
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The PBOC aims for 500 billion yuan to be channeled to debt-to-equity swaps, and 200 billion yuan to be freed up for smaller banks to lend to small firms. When they announced the cut on Sunday, the central bank also released detailed instructions to make sure that the money flows to where they want it to.
Funds released from the cut will be closely monitored, with every debt-to-equity transaction documented and submitted for review on a quarterly basis. The record of small businesses financing will also be included in the central bank’s macro-prudential assessment review, according to the statement.
— With assistance by Miao Han
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