China’s financial institutions have received a directive from a senior Chinese financial regulatory official to provide robust support to the troubled real estate sector. The official emphasized the importance of exercising careful consideration and not withdrawing financing for projects facing difficulties. This imperative comes in response to the significant reduction in mandatory cash reserves for banks by the Chinese central bank and the release of a new policy aimed at alleviating the cash crunch for Chinese developers, who have been struggling with the consequences of the crackdown on the sector’s high levels of debt.
During a press conference in Beijing, Xiao Yuanqi, deputy director of China’s National Financial Regulatory Administration, emphasized the undeniable responsibility of the financial industry to provide unwavering support to the real estate sector. He underscored the industry’s wide-ranging impact on the national economy and its close connection to people’s lives. In particular, he highlighted the long and interconnected nature of the real estate industry chain and its significant influence on various areas.
The financial challenges faced by China’s real estate sector are closely linked with the finances of local governments, which traditionally depend on revenue from land sales to developers. The crackdown on developers’ heavy reliance on debt for growth in 2020 has led to a decline in the property market, resulting in reduced consumer spending and slower overall growth in the world’s second-largest economy.
Xiao Yuanqi advocated for a more nuanced approach to addressing the challenges faced by projects in difficulty. He cautioned against hastily withdrawing, suppressing, or terminating loans for these projects. Instead, he recommended providing increased support through measures such as extending existing loans, adjusting repayment arrangements, and offering new loans where appropriate.
The recent relaxation of funding guidelines, valid until the end of the year, is intended to be targeted. Xiao clarified that China’s state banks will issue operating property loans to real estate companies based on manageable risks and commercial viability. Eligible property developers will have the opportunity to use these loans to repay existing loans of real estate companies and bonds issued in the open market.
In a rare move, Beijing’s stimulus announcement was made at a press briefing, indicating a deliberate signal from the Chinese government at a time when the country’s stock markets are facing significant challenges. Typically, such policy announcements are made online and disseminated through state media. The decision to make the announcement in person underscores the importance and urgency of the matter at hand.
As the real estate sector continues to grapple with financial challenges, the support and interventions outlined by the Chinese financial regulatory official signal a concerted effort to address the issues at hand and bolster the stability of the sector. This approach reflects a recognition of the sector’s significance within the national economy and its far-reaching implications for various stakeholders.
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