China’s policy banks have been pummeled by rising funding costs in the bond market, and will need policy assistance in 2018, most likely from the central bank’s balance sheet, if they are to fulfill their function of supporting government-led priorities in infrastructure investment and shantytown redevelopment in smaller cities. While they have no profit incentives, policy banks are still subject to the tightening regulatory net and have seen their capacity to support the economy weaken sharply this year.
