China’s financial regulators have slapped their most draconian rules yet on the RMB 16 trillion ($2.5 trillion) real estate industry, hitting the country’s highly leveraged developers where they hurt most: their bank loans, reported the South China Morning Post.
A new concentration management system (CMS) took effect on January 1, limits banks’ property-related lending to their capitalisation based on a five-tier grade. The central bank’s much-vaunted “three red lines” – financial requirements that decide whether developers can borrow – have also kicked in to limit the banking system’s exposure to the property sector.
The new policies may let some air out of the speculative bubbles in the residential property market which have defied the central bank’s deflating attempts since 2017. The Chinese government is anxious to prevent any collapse of the highly leveraged property market from spilling over into systemic risk, especially while economic growth is tentative amid the global coronavirus pandemic, said the SCMP.
“Investment in infrastructure and property led the economic recovery [in China] last year,” said Qu Hongbin, chief China economist at HSBC. “Those two engines may slow in 2021 as government bond issuance shrinks and financing rules for property developers tighten. But investment in manufacturing should rebound on the back of stronger demand, rising capacity utiliZation and more digitaliZation.”