China’s banks have been warned to tighten their loan approval processes for fear of running into similar troubles to those beleaguering US mortgage agencies Fannie Mae and Freddie Mac, the Financial Times reported. Liu Mingkang, head of the China Banking Regulatory Commission, has been making the rounds of the state-owned banks, urging them to beware real estate sector risks. With property sales volume in cities such as Shanghai, Beijing and Shenzhen falling in recent months, it is feared that a sharp fall in housing prices could result in the banks holding a large portion of bad debt. "The only reason we haven’t seen similar problems here is because property prices have continued to rise rapidly," said Yi Xianrong, an economist at the China Academy of Social Sciences. Although total household savings in China are five times the size of outstanding consumer debts, including mortgages, banks’ lending criteria are said to be lax.
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