(Bloomberg) -- China’s central bank kicked off a specialized re-lending facility to help listed companies and major shareholders buy back shares, boosting market optimism over Beijing’s support and sending stocks higher.
The previously announced program offers 300 billion yuan ($42.1 billion) in low-cost loans to 21 eligible commercial banks that lend to qualified companies and shareholders, according to a statement from the People’s Bank of China on Friday.
The PBOC also announced the start of a swap facility, which allows institutional investors to access liquidity from the central bank to purchase stocks. The program has received applications for over 200 billion yuan, according to a separate statement.
Both programs were unveiled by PBOC Governor Pan Gongsheng in late September at a blockbuster press briefing, where he outlined a slew of steps to shore up the economy and stock market. This initially sent stocks soaring in a historic rally, though gains have eased as investors wait for further stimulus measures, such as increased government spending.
Chinese stocks climbed, with the benchmark CSI 300 Index reversing earlier declines to trade 0.8% higher as of the midday break. A Bloomberg gauge of brokerage stocks in Hong Kong jumped as much as 6.2%.
“It’s a first step, but the market needs clarity on follow-up measures to regain confidence,” said Billy Leung, an investment strategist at Global X ETFs. “Markets are ultimately looking for more substantial fiscal commitments to drive a sustained recovery.”
Pan explained the rationale behind the stimulus package at the Financial Street Forum on Friday, saying the property and capital markets are among the economy’s biggest challenges and require targeted policies. Pan said the decisive rollout of stimulus measures reflects policymakers’ determination to stabilize the economy and sentiment, Chinese media reported.
The central bank will step up counter-cyclical monetary policy adjustments, Pan said, a reference to easing measures aimed at bolstering growth, according to local media reports. He reaffirmed that the PBOC will make a rebound in prices a key consideration for policies.
Under the re-lending tool, commercial banks can apply for one-year loans from the central bank at an interest rate of 1.75%, according to the PBOC. That’s cheaper than the 2% rate on one-year policy loans of the medium-term lending facility.
Banks are responsible for issuing the loans and managing the risks, while the PBOC will provide funds equivalent to the principal of the loans to commercial lenders.
For the swap facility, about 20 institutions including securities firms and funds have been approved to participate. The program allows institutional investors to access highly liquid assets from the PBOC by pledging bonds and certain stocks as collaterals. Initially set at 500 billion yuan, the facility may be expanded based on needs.
The Chinese yuan and proxy currencies such as the Australian dollar and Korean won were boosted by PBOC’s stock support. The offshore yuan climbed as much as 0.2% to 7.1225 per dollar.
Government bonds are seeing less demand as investors chase the rally in stocks, with the benchmark 10-year yield erasing declines to stand at 2.1%.
--With assistance from Tian Chen, Winnie Hsu and Abhishek Vishnoi.
(Updates throughout)
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