Business & Investment

China is trying to curb lending to cool the real estate boom

The People’s Bank of China urged lenders to curb credit supply as the surge in lending that underpinned the recovery of the coronavirus from national debt renewed concerns about the asset bubble and financial stability.

New mortgage growth reached 16% in the first two months of the year. In February, the People’s Bank of China instructed domestic and foreign lenders to keep new lending in the first quarter of this year at about the same level as last year, according to people familiar with the situation. ..

The directive could lead to a significant reduction in bank lending, the largest source of funding for the world’s second-largest economy.

The move highlighted a shift in policy focus as Beijing moved to managing credit risk rather than boosting regulatory oversight. economic growth, Already returned to the pre-pandemic level.

China’s gross domestic product increased 6.5% in the fourth quarter of last year, making it one of the few countries to record positive economic growth for the whole year.Beijing has already set at least a goal 6% growth 2021.

“There are no more concerns about a pandemic recession,” said Larry Fu, chief China economist at Macquarie Group in Hong Kong. “The top priority is to reduce the debt burden on the economy.”

The lending boom in early 2021 followed a sharp recovery in China’s real estate transactions and investment as a pandemic stimulus in Beijing. Lifted the local housing market..

New home sales in China surged 133% in January and February this year, with real estate investment up 38%. This demand helped boost mortgage growth by 14%, the highest level in seven years, over the same period.

“Real estate is the safest industry to trade because it has few better collateral than real apartments,” said a Shanghai-based banker.

However, as home prices soared across China’s coastal hubs, Beijing has enacted a number of measures designed to control the housing boom. control About misuse of business loans in real estate purchases.

It put pressure on real estate lending and made lenders with large exposure to the sector an important target for the latest restraints.

In December, the PBoC also tightened restrictions on cross-border lending. This severely limited the ability of foreign banks to expand in China, despite Beijing’s pledge to continue liberalizing capital regulations. Allow foreign players In that financial market.

The limit was aimed at slowing down RMB rise, In 2020, it rose nearly 7% against the US dollar.

But the currency appreciation could weaken China’s surge in exports, This increased by more than 18% in December, pushing the country’s trade surplus to a monthly record of pandemic-led demand.

Another Shanghai-based banker has pressured many small banks, including foreign lenders, to “fundamentally” reduce new lending that significantly exceeds regulatory standards due to recent lending restraints. Said it was done.

“If other industries are taking more risk, it’s very difficult to maintain a small percentage of real estate loans in the loan books,” said the banker.

China is trying to curb lending to cool the real estate boom

https://www.ft.com/content/5bdab1f8-3285-41ca-b964-bf3ce6b2c7fb China is trying to curb lending to cool the real estate boom

Back to top button