The dilemma of the banks
China’s government has been urging banks to lend more to the property sector, which is facing a liquidity crunch and a wave of defaults. However, many banks are reluctant to do so, fearing that they will expose themselves to more risks and bad debts.
The property sector accounts for about 25% of China’s GDP and 40% of its debt. It is also a major source of social stability, as millions of Chinese citizens have invested their savings in real estate. However, the sector has been hit hard by the COVID-19 pandemic, the tightening of regulatory policies, and the collapse of some major developers, such as Evergrande and Kaisa.
The government has been trying to prevent a systemic crisis by asking banks to extend loans, roll over debts, and lower interest rates for developers. It has also eased some of the restrictions on the sector, such as the “three red lines” that limit the leverage ratios of developers. However, these measures have not been enough to revive the confidence and demand in the market.
The concerns of the regulators
The regulators are also worried about the potential impact of the property slump on the financial system and the economy. They have been monitoring the situation closely and issuing warnings to banks to be prudent and cautious in their lending decisions.
The China Banking and Insurance Regulatory Commission (CBIRC) said in a statement on Monday that it will strengthen the supervision of banks’ exposure to the property sector and prevent the spread of risks. It also urged banks to improve their risk management and internal controls, and to diversify their loan portfolios.
The People’s Bank of China (PBOC), the central bank, has also been injecting liquidity into the banking system to ease the pressure on the lenders. However, it has not cut the benchmark interest rates or the reserve requirement ratios, as some analysts had expected. The PBOC has been trying to balance the need to support the economy and the property sector, and the need to contain the debt and inflation risks.
The outlook of the market
The market sentiment remains gloomy, as the prospects of the property sector are uncertain and the recovery is uneven. The sales and prices of new homes have been falling for several months, and the inventory of unsold homes has been rising. The developers have also been struggling to raise funds, as the bond and equity markets have been closed to them.
Some analysts believe that the worst is not over yet, and that more defaults and restructuring are inevitable. They also warn that the impact of the property downturn will be felt beyond the sector, and will affect the consumption, investment, and growth of the economy.
Others are more optimistic, and believe that the government will not let the sector collapse, and will intervene if necessary. They also point out that the demand for housing is still strong, especially in the lower-tier cities and the rural areas, and that the sector will eventually stabilize and recover.
