More than 3 trillion yuan ($431 billion) in lines of credit are being opened by Chinese banks for cash-strapped real estate companies, showing a temporary preference for economic stabilisation over debt reduction in the sector.
The largest state-owned bank in the country, Industrial and Commercial Bank of China, has announced plans for 12 debtors, including premier housing business Country Garden Holdings, to receive credit lines totalling 655 billion yuan.
Major state-owned and regional banks have issued credit lines totalling more than 3.19 trillion yuan in total. If they were all used up, the total amount of outstanding real estate development loans would increase from the 12.67 trillion yuan figure at the end of September by almost 25%.
A deeply indebted property sector, whose problems have dragged on China’s economy, is given a lifeline by new lending. The assistance to real estate developers implies that the leadership under President Xi Jinping is focused on bolstering the economy, similar to previous actions to scale back regulations relating to the coronavirus.
The second- and third-largest state-owned banks in the nation, China Construction Bank and Agricultural Bank of China, have not specified particular credit lines, so additional support for the industry may be on the way.
The real estate sector’s debt issues won’t be resolved right away, not even with the boost that was recently announced. Liabilities for developers include accounts payable and houses that have been sold but not yet delivered. Bank loans only make up about 10% of Country Garden’s overall liabilities.
Beijing’s strict attitude on lending to the real estate sector was relaxed by new assistance measures that the government announced on November 23. The government announced a number of limitations in 2020 and 2021, including the “three red lines,” which include a cap on real estate loans and a limit on the debt-to-equity ratio.
China’s gross domestic product, including related industries, consists of about 30% real estate. A wide range of economic effects result from changes in loans to the real estate sector.
According to China Real Estate Information, the value of house sales at the top 100 enterprises declined by about half compared to November 2020 and by 25.5% on the year in November. Social unrest has been sparked by the housing market’s turbulence, and one example is mortgage strikes by buyers of homes whose construction has been put on hold.
Guo Shuqing, who serves as both the chairman of the China Banking and Insurance Regulatory Commission and party secretary of the People’s Bank of China, was expelled from the party’s Central Committee at the party congress in October. Guo, a prominent financial reformer, has led deleveraging initiatives, including the development of the three red lines.
Many in the financial sector think that Yin Yong, the deputy party secretary for Beijing, and Yi Huiman, the chairman of the China Securities Regulatory Commission, two individuals who were recently elevated to the Central Committee, will assume important positions in monetary policy, potentially usurping reformers.
State-owned banks’ assistance to the real estate sector will increase cash flow, according to an analyst. Chinese real estate equities traded on the Hong Kong exchange make up the Hang Seng Mainland Properties Index, which is risen more than 90% from its low point in late October.
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