- No relaxation in assets despite recession, Evergrande crisis-formula
- Beijing appeared tougher than ever in dealing with asset bubble
- C.Bank to put ‘three red lines’ to curb developers’ debt
- Policy makers may consider reversing banks’ over-tightening
BEIJING, Oct 14 (Businesshala) – Chinese leaders fear a persistent asset bubble could undermine the country’s long-term climb, with the sector likely to maintain tighter restrictions even as the economy slows, but some as needed. The strategy may soften, policy sources and analysts said.
President Xi Jinping is determined to move forward with the latest round of asset crunches, even if it adds to near-term pain, unlike previous campaigns that saw faltering economic growth, he said.
Xi’s resolve stems from a long-term structural push to reduce the economy’s dependence on assets and debt and channel more resources into high-tech manufacturing and other emerging sectors to drive growth.
Despite the rapid expansion of other industries in recent years, the property sector, along with related sectors such as construction, still accounted for more than a quarter of China’s gross domestic product (GDP).
The world’s second largest economy has made an impressive comeback from the pandemic, but there are signs the recovery is losing steam. Growing power shortages are adding to pressure from asset restrictions, raw material shortages, supply chain disruptions and weak consumer spending.
Global concerns about a potential spillover of credit risk from China’s property sector to the broader economy have also intensified as leading developer China Evergrande Group (3333.HK) wrestles with debt of more than $300 billion .
Xi’s top economic aide Liu He has repeatedly warned against financial risks, while the head of the banking regulator and party chief of the People’s Bank of China (PBOC) Guo Shuqing has said the asset is the country’s largest “grey rhino”. Is.
The “grey rhino” refers to an obvious, significant threat that is often overlooked until it is too late.
A source involved in discussions on the internal policy said, “The asset ban will be painful, but it is a price that needs to be paid.”
“In the past, we always loosened controls due to economic slowdown, but this time the determination of the leadership looks very determined.”
The State Council Information Office and PBOC did not immediately respond to Businesshala requests for comment.
red lines in the sand
Analysts said that despite several campaigns over the years to curb hot property prices, housing in China has become increasingly ineffective, which has helped boost birth rates and address the rapid aging and slow growth of its population. Beijing’s efforts have been hampered.
Authorities took the latest property curbs in August 2020, when the PBOC introduced new measures to closely monitor and control developers’ debt levels – setting up “three red lines” to curb their lending and contain credit risks .
But the cost of policy mistakes will be high, given the size of the industry, its importance as a revenue source for local governments, and the risk to social stability in the event of a rapid drop in home prices. Many Chinese have never seen a decline in extended wealth.
“We should prioritize stability in the property sector. We don’t want to see a rapid rise in property prices, nor do we want to see many property developers go bankrupt,” Zong Liang, chief researcher at Bank of China, told Businesshala. “
Are marginal changes still possible?
While PBOC developers are likely to remain under pressure to reduce debt and clean up their balance sheets, some minor policy changes may be possible to correct excessive credit tightening by some lenders, insiders and analysts.
Last month, as Evergande’s debt crisis intensified, the PBOC said it would protect the legitimate rights and interests of home buyers.
“The ‘three red lines’ are unlikely to change, but the implementation of the rules could be loosened slightly,” said Lian Ping, chief economist at Zhixin Investment.
“Standards on property loans will not be loosened, but the scale of such lending can be scaled up to some extent,” he said.
Unlike speculators, banks may be given more leeway to lend to genuine home buyers, and healthy developers may get more support, analysts said.
“In the midst of a worsening slowdown, we expect Beijing to pursue fiscal and monetary easing measures, although it will maintain its tough stance on the asset sector and those with high carbon emissions,” said Ting Lu, Nomura’s chief China economist. pay attention.
However, some local governments may introduce some moderately easing measures, focusing on removing local restrictions and adding some subsidies, Lu said.
Meanwhile, the PBOC has been providing more credit to the manufacturing sector in recent months, at the expense of the property sector.
Outstanding medium and long-term loans to the manufacturing sector grew 41.6% year-on-year in June, accelerating from a growth of 24.7% a year ago, while the growth of outstanding credit to the property sector slowed to 9.5 from 13.1 in June. % happened. % a year ago, the central bank data showed.