China Cuts PSL Rate, Lifts Relending Quotas and Launches First-Time Buyer Mortgage Subsidy

China's central bank announced on Tuesday, Sept 29, that it cut the rate on its one-year pledged supplementary lending (PSL) facility by 25 basis points to 1.5% from 1.75%, and broadened PSL to fund investment in water, power grids, computing, communications, urban pipelines and logistics. It also raised three relending quotas: sci-tech innovation by 200 billion yuan to 1.4 trillion, farm and small-business lending by 500 billion yuan to 4.85 trillion, and private-enterprise lending by 300 billion yuan to 1.3 trillion.

The property measure is a first-time buyer subsidy. From Oct 1, eligible buyers of new homes get an annual interest subsidy of 1 percentage point for up to five years, on loans capped at 1 million yuan per household for homes of up to 120 square meters priced at no more than 1.5 million yuan. The package followed a State Council pledge the day before to strengthen counter-cyclical support. China is targeting 4.5% to 5% growth this year after second-quarter growth slowed to 4.3%. Bloomberg described it as the first coordinated fiscal and monetary stimulus in two years, seen as "securing GDP target, not much more".

Markets were unimpressed. The CSI 300 edged up 0.1% to 4,345 on Tuesday and the Hang Seng fell 0.5% to 24,524, and by Wednesday morning Reuters reported blue chips near one-year lows, on track for a roughly 13% quarterly drop, the largest since 2022. Pantheon Macroeconomics' Duncan Wrigley said the package "won't solve China's structural imbalances, with sluggish domestic demand and high reliance on exports," and Barron's noted investors remain wary. What to watch: take-up of the mortgage subsidy, credit data after the October holiday, and whether Beijing adds fiscal support if growth stays below target.