China’s financial regulator pledges steps to shore up property market

China’s financial regulator turned its sights on the property market on Thursday, vowing measures such as better support for cash-strapped developers and mortgage policies designed to offer more help for households.

Xiao Yuanqi, deputy head of the National Administration of Financial Regulation, said the priority for this year was to “accelerate the implementation of the urban real estate financing coordination mechanism” – a measure announced earlier this month to ask local governments to better coordinate with financial institutions to provide financial support for real estate projects.

“[We will] ask banks to take action as soon as possible… [and] make good use of the policy toolbox and accurately support the reasonable financing needs of real estate projects,” he added.

Xiao said the regulator will soon convene a meeting, asking local governments to work with housing and construction departments to implement city-specific measures.

Meanwhile, the People’s Bank of China announced it would inject 1 trillion yuan (US$141 billion) of liquidity by slashing the reserve requirement ratio by 50 basis points and lowering the relending rate for some banks loans by 25 basis points.

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The central bank also decided to set up a new department to oversee credit support, a sign it will provide tailor-made support to the country’s weak links.

Analysts have long urged the authorities to act to fend off the so-called 4Ds of an economic apocalypse – debt, deflation, de-risking and demographics – but doubts, mainly from overseas, remains about how the top leadership will overcome the barriers to solving these problems or manage wider challenges such as global market turmoil and wider geopolitical tensions.

“Beijing’s policy announcements will provide only a small boost for China’s economy,” Capital Economics said in a report published Wednesday.

“Much of China’s weakness is structural rather than cyclical. Wholehearted loosening would add to China’s debt without having a lasting impact on growth,” the London-based research firm warned.

The property sector, together with construction, materials and downstream home appliances, used to contribute to around a quarter of the country’s economic output. But in terms of added value, its share dropped to 5.8 per cent of gross domestic product last year, according to government data.

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04:49

Anger mounts as China’s property debt crisis leaves flats unfinished

Anger mounts as China’s property debt crisis leaves flats unfinished

On Wednesday, central bank governor Pan Gongsheng hinted at a cut in loan prime rates, a reference point for mortgage rates widely watched by Chinese households, next month and subsequently a policy rate cut in its medium-term lending facility.

The central bank and regulator jointly issued a notice the same day to allow real estate developers to bank loans backed by their firms’ commercial properties to repay other outstanding loans and bonds.

Increasing lack of funds and debt defaults from developers across the country have led to numerous unfinished houses being sold , which caused many buyers to stop repaying their mortgages two years ago, risking a greater knock-on impact on the financial stability of the world’s second largest economy.

The situation has heightened concern among the authorities about social instability and Chinese banks have already extended 350 billion yuan of loans to ensure housing units are completed.

Xiao indicated that the property sector’s woes have not yet hit the country’s banks, as the non-performing loan ratio stood at 1.62 per cent in the fourth quarter last year, compared with 1.61 per cent a quarter earlier.

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The latest moves from the financial watchdogs follow a meeting of the State Council, the country’s cabinet following a sharp decline in Chinese stock markets that fuelled wider worries about the Chinese economy.

The meeting called for efforts to “enhance the innovation and coordination of policy tools” to support the economic recovery.

“We see the eased monetary policy stance aiming to increase coordination around other policy moves,” HSBC said in its note.

Other parallel policy support were also introduced to help stabilise the property sector, including 350 billion yuan in pledged supplementary lending to policy banks – money which could help fund affordable housing, urban village redevelopment and public facilities.

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A look into China’s real estate market: unpaid workers and silent construction sites

A look into China’s real estate market: unpaid workers and silent construction sites

However, “China’s current economic weakness has structural roots and that a credit-fuelled turnaround would provide only temporary relief at the cost of adding to financial risks,” HSBC added.

Independent think tank Anbound also argued on Sunday that the key lies not in “technical stimulus policies”, but Beijing’s determination to follow a market-oriented path and insist on reform and opening-up.

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