An old house is seen in front of new apartment buildings in Guangfuli neighbourhood, in Shanghai, China, April 18, 2016. REUTERS/Aly Song/File Photo Acquire Licensing Rights
HONG KONG, Nov 15 (Reuters Breakingviews) – Xi Jinping is stuck between debt-ridden developers and risk-shy bankers. The Chinese president’s latest attempt to boost housing through cheap loans is an enlarged version of a 2022 scheme. That didn’t work because lenders balked at increasing their exposure to over-leveraged real estate groups. Xi needs to articulate a broader plan to restore banks’ confidence in the troubled property sector.
The People’s Bank of China plans to provide at least 1 trillion yuan ($137 billion) of low-cost financing to shore up an ailing property market that at its peak accounted for more than 20% of the Chinese economy. Authorities will inject the fund in phases into urban renewal projects and public housing programs through state-directed policy banks, Bloomberg reported on Tuesday. They hope that, eventually, the money will trickle down to homebuyers.
Beijing’s problem is that the cash it doles out may not reach the intended targets because banks are reluctant to pass it on to property developers. The PBOC began providing interest-free loans to state banks in November last year after homebuyers staged nationwide protests and refused to make mortgage payments on unfinished homes. But banks have so far taken up less than 1% of the 200 billion yuan offered by the central bank, according to the Financial Times, due to high risks associated with distressed projects.
Authorities have stepped up efforts to put a floor under a market downturn in which nearly all major private-sector property firms have defaulted. The sour mood stemming from falling house prices is also weighing on consumer confidence and the broader economy.
Xi was grappling with a similar vicious cycle in 2013 when he first came into office. Things only started to change two years later when his administration intensely pushed a policy directive aimed at “destocking” the property sector, or helping developers reduce their inventory of unsold homes. Chinese banks heeded the strong signal coming from Beijing. They started to finance local governments to pay off displaced residents of shantytown redevelopments, who used the money to buy new homes.
That helped to shore up property prices and avert a crash. Paradoxically, that “destocking” led to a quick “restocking” as major developers quickly took on more debt, causing the real estate bubble that Beijing is fighting right now.
Still, simply throwing money at reluctant banks won’t help heal the current real estate wounds. Xi may need to take a page out of his own playbook and come up with an all-encompassing policy to deal with the problem once and for all.
CONTEXT NEWS
The People’s Bank of China plans to inject at least 1 trillion yuan ($137 billion) of low-cost financing into the real estate sector, as authorities step up efforts to shore up the struggling property market, Bloomberg reported on Nov. 15.
In November 2022, Beijing set up a similar scheme to provide 200 billion yuan in interest-free loans through state banks to finance stalled housing projects across the country. Less than 1% of the funds have been tapped, the Financial Times reported on Sept. 14, as Chinese banks are reluctant to bear the risks of lending to distressed projects.
Editing by Francesco Guerrera and Thomas Shum
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Vehicles drive among the buildings during the evening rush hour in Beijing’s central business area, China November 21, 2018. REUTERS/Jason Lee/File Photo Acquire Licensing Rights
BEIJING, Sept 20 (Reuters) – China should step up policy support for the economy while promoting reforms to help achieve the annual growth target of around 5%, Yi Gang, former governor of the People’s Bank of China (PBOC), said in remarks published on Wednesday.
China’s factory output and retail sales grew at a faster pace in August, but tumbling property investment threatens to undercut a flurry of support steps that are showing signs of stabilising parts of the wobbly economy.
“We should appropriately increase macroeconomic policy adjustments, effectively support the expansion of domestic demand and promote a virtuous economic cycle,” state media quoted Yi, deputy head of the economic committee of the Chinese People’s Political Consultative Conference (CPPCC), as saying.
That will help China achieve the 2023 growth target of around 5%, Yi said.
The government should move to boost the weak confidence of private firms and tackle local government debt risks that have hampered local authorities’ ability to support growth, Yi said.
“In the long term, affected by factors such as the slowdown in urbanisation and the population aging, the overall demand for home purchases may fall to a new level,” Yi said.
The central bank should use its structural policy tools to support “rigid and improved housing demand”, he said.
Yi also called for reforms of China’s system on residence permits, or “hukou”, and improve social welfare for millions of migrant workers who had entered cities, which will help boost consumption.
Reporting by Kevin Yao; Editing by Chizu Nomiyama
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BEIJING, Aug 1 (Reuters) – China will lower financing costs for firms, stabilise market expectations and support the property sector in coming months, the central bank said on Tuesday amid a flagging economic recovery.
The world’s No.2 economy staged a better-than-expected recovery in the first quarter following COVID reopening but has lost steam since the April-June quarter as demand waned both at home and abroad.
The People’s Bank of China’s (PBOC) statement followed a meeting at which officials from the bank and the State Administration of Foreign Exchange (SAFE) looked to the second half of the year.
As the property sector had failed to get out of the woods yet, the PBOC pledged it would support a “stable and healthy development” of the real estate market, including continuing to guide the reduction of personal housing loan interest rates and downpayment ratios, according to the statement.
The PBOC will also guide commercial banks to adjust rates on existing mortgages in a legal and orderly manner.
A private survey showed on Tuesday average new home prices in 100 Chinese cities fell for a third consecutive month in July.
China will also pay close attention to cross-border capital fluctuations, keep the yuan basically stable and step up support for firms to hedge exchange rate risks, the PBOC statement said.
To ease pressure on the yuan, Chinese currency regulators have in recent weeks asked some commercial banks to reduce or delay their dollar purchases, Reuters reported on Tuesday, citing two people with direct knowledge of the matter.
The country will also coordinate financial support on the settlement of local government debt risks and effectively fend off financial risks in key areas, the statement said.
Pan Gongsheng, the PBOC governor as well as the head of SAFE, spoke at the meeting.
Reporting by Ellen Zhang, Ella Cao and Kevin Yao in Beijing and Twinnie Siu in Hong Kong; editing by Christina Fincher and Nick Macfie
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BEIJING, March 15 (Reuters) – China’s retail sales in the first two months of 2023 swung back to growth, but factory activity expanded slightly slower than expected, suggesting the bruised economy still needed time to fully emerge from pandemic damage.
Property investment in the January-February period fell again as home buyers and developers remained cautious despite a slew of supportive government policies.
Industrial output in the January-February period was 2.4% higher than a year earlier, data by the National Bureau of Statistics (NBS) showed on Wednesday, slightly missing expectations for a 2.6% gain in a Reuters poll. The reading accelerated from a 1.3% annual rise in December.
Retail sales in the first two months jumped 3.5% from a year before, reversing a 1.8% annual fall seen in December. The result was in line with analysts’ expectation and with hopes for an economic revival led by consumption as flagging global demand weakens Chinese exports.
The mixed data portrayed an uneven recovery in economic activity following China’s abrupt abandonment late last year of its three-year-long campaign to control COVID-19.
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It pointed to “a steady rather than accelerating momentum”, said Zhou Hao, chief economist at Guotai Junan International. It indicated that strong policy support was needed to unleash the growth potential, he said.
Fixed asset investment in the first two months was 5.5% higher than a year earlier, compared with expectations for a 4.4% rise. Government support appeared to have helped, said Zhou.
For all of 2022, fixed asset investment was up 5.1% on 2021.
Within January-February fixed-asset investment, infrastructure investment surged 9.0% from a year before.
However, property investment in the two months was still down 5.7% on the same period of 2022, after showing an annual fall of 12.2% in December.
LIQUIDITY INJECTIONS
The NBS publishes combined January and February data to smooth out distortions caused by the Lunar New Year holiday, which fell in January this year but was in February in 2022.
The central bank ramped up liquidity injections on Wednesday when rolling over maturing medium-term policy loans for a fourth month in a row. It also kept its policy interest rate unchanged. Both decisions matched market expectations.
China has set a modest annual growth target of around 5% this year after significantly missing its target for 2022 and recording one of its worst showings in nearly half a century.
Achieving the 2023 target would not be an easy task and would require more effort, new Premier Li Qiang said on Monday.
The government prioritised economic growth and employment in a work report delivered to the annual meeting of parliament, which wrapped up on Monday. Authorities set a goal of creating around 12 million urban jobs this year, up from last year’s target of at least 11 million, and warned that risks remained in the real estate sector.
In the first two months, the nationwide survey-based urban jobless rate climbed to 5.6% from 5.5% in December.
Employment was basically stable, and seasonal factors had caused the rise in the jobless rate for February, NBS spokesman Fu Linghui told reporters.
Additional reporting by Qiaoyi Li; Editing by Bradley Perrett
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BEIJING, Feb 19 (Reuters) – China’s banking regulator and the central bank plan to adopt a more differentiated regulatory system for assessing commercial banks’ capital adequacy and risk management, in a step to better prevent risks in the country’s financial system.
The China Banking and Insurance Regulatory Commission and the People’s Bank of China on Saturday jointly released amended draft rules that they said aimed to help banks “continuously improve the precision of risk measurement and guide banks to better serve the real economy.”
The draft rules, which bring the banking sector closer to global standards, will divide lenders into three groups based on business scale and risk level.
The rules will apply a differentiated regulatory system to banks. Lenders with a relatively large scale of assets or relatively large cross-border business will be under stricter capital requirements and will have to disclose more information to regulators.
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In addition, the rules will include more specific factors to measure banks’ risk exposure to mortgage lending, such as the types of property, sources of repayments and loan-to-value ratios.
China’s property market, once a pillar of growth, has slowed sharply over the past year, hobbled by fragile demand and mounting debt defaults by developers.
The two regulators said implementation of the new rules would leave capital adequacy ratios in the banking sector generally unchanged, though the ratios for some banks would change slightly.
The commission and central bank are seeking public comment before implementing the changes on Jan. 1, 2024.
Reporting by Beijing Newsroom; Editing by Bradley Perrett
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BEIJING, Nov 14 (Reuters) – China’s financial regulator will allow property developers to access some pre-sale housing funds, it said in a notice published on Monday, the latest move to ease a liquidity crunch which has plagued the real estate sector since mid-2020.
The notice follows an extensive package outlined by Chinese regulators to shore up financing in the struggling property sector. Chinese property stocks and bonds surged on Monday as the market cheered the measures.
Commercial banks are allowed to issue letters of guarantee to real estate firms for escrow pre-sale housing funds, according to the notice published by China’s Banking and Insurance Regulatory Commission (CBIRC).
The funds obtained by real estate companies from escrow funds accounts shall be prioritised to construct projects and repay debts, said the notice.
Real estate companies are banned from using the funds for land acquisition, new investment or repayment loans by shareholders.
Property developers can sell residential projects before completing them but are required to put those funds in escrow accounts.
China’s property sector, contributing roughly a quarter of China’s $17 trillion of output, has struggled with defaults and stalled projects, hitting market confidence and weighing on growth.
Previous efforts by policymakers to help ease the cash crunch have done little to bolster the property market.
Reporting by Liangping Gao and Ryan Woo
Editing by David Goodman and Emelia Sithole-Matarise
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HONG KONG/BEIJING, Nov 2 (Reuters) – Chinese policymakers pledged on Wednesday that growth was still a priority and they would press on with reforms, helping further boost stock markets buoyed by hopes that Beijing will ease off on its strict COVID-19 measures.
The policymakers’ comments came in an apparent bid to soothe fears that ideology could take precedence as Xi Jinping began a new leadership term and strict COVID curbs exact a growing toll on the world’s second-largest economy.
Even though case numbers are rising and disruptive lockdowns continue with no clear exit strategy in sight, investors latched on to hope that China may ease its strict COVID policy in the coming months.
“We believe China could soon fine-tune its COVID restrictions, with a more targeted approach, less restrictive quarantine guidance and the more balanced assessment of the virus,” Morgan Stanley analysts said in a note.
China and Hong Kong stocks ended higher for a second session on Wednesday, and U.S.-listed Chinese stocks rose in premarket trading.
On the ground, however, there were no signs of an ease up. Renewed COVID lockdowns are weighing heavily on China’s business activity and consumer confidence.
In the latest fallout, electric vehicle maker NIO said it suspended production in the eastern city of Hefei amid rising COVID-19 cases and Yum China , operator of the KFC and Pizza Hut chains, said it was temporarily closing or reducing services at over 1,000 of its restaurants in China.
Luxury goods companies Estee Lauder Cos Inc (EL.N) and Canada Goose Holdings Inc (GOOS.TO), also cut their full-year forecasts, blaming a hit from persistent COVID-19-related lockdowns and store closures in China.
Xi secured a third term as general secretary at the ruling Communist Party’s twice-a-decade congress last month, when he urged the party to brace for hardship and strengthen national security, and renewed his support for the zero-COVID policy, despite the fragile economy.
In pre-recorded interviews for the Global Financial Leaders’ Investment Summit in Hong Kong, senior officials from China’s central bank, securities and banking regulators assured their audience via a video link that China would keep its currency and property markets stable, and remained committed to a pro-growth economic strategy.
“International investors should read more carefully about the work report that President Xi delivered” at the congress, said Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC).
“There, he re-emphasized the centrality of economic growth in the entire work of the Party and the country, and that’s very significant,” showing China is fully focused on growth, he said.
Fang also criticised international media coverage, saying that a lot of reports “really don’t understand China very well” and had a short-term focus.
As foreign funds head for the exits, Chinese investors have been snapping up cheapened shares of mainland firms, betting that outside views of China have been excessively negative. read more
OPEN-DOOR POLICY
Yi Gang, governor of the People’s Bank of China (PBOC), said China will continue to deregulate its markets.
“Reform and open-door policy will continue,” Yi said.
Apparently seeking to ease worries over the impact of COVID lockdowns and a property market crisis, Yi said “the Chinese economy has remained broadly on track despite some challenges and downward pressure.”
“I expect China’s potential growth rate to remain in a reasonable range,” Yi said, citing the country’s “super large” market, a rising middle-class, technological innovation and a high-quality infrastructure network.
Separately, in a book entitled “A Supplementary Reading of the 20th Communist Party Congress Report” and cited in local media on Wednesday, Yi said China is in a position to maintain “normal” monetary policy and “positive” interest rates.
Global interest rate hikes have pressured yuan assets, and it is impossible for China to keep cutting interest rates in the long run, Wang Jun, director at China Chief Economist Forum, told Reuters.
While other countries have been tightening policy to battle rising prices, China has implemented an accommodative monetary policy to shore up sputtering growth, raising concerns about capital flight. The yuan has weakened roughly 13% against the dollar this year.
But Yi said the yuan has appreciated against other major currencies, “maintaining its purchasing power and keeping its value stable.”
CRISES
Noting China’s property crisis, and the sector’s links to other many other industries, Yi said, “We hope the housing market can achieve a soft landing.”
With China’s zero-COVID policy expected to remain in place through at least the winter, or longer, its near-term growth outlook is bleak.
Fears of renewed disruptions to global supply chains are resurfacing.
On Wednesday, a Chinese industrial park that hosts an iPhone factory belonging to Foxconn (2317.TW) announced a fresh lockdown.
“We expect Beijing to maintain its zero-Covid strategy at least until March 2023,” according to Nomura.
After surprisingly high gross domestic product growth of 3.9% in the third quarter, Nomura expects growth to drop again, with zero or even negative sequential growth from the previous quarter.
“We maintain our GDP growth forecast of 2.8% year-on-year for the fourth quarter with a corresponding sequential growth forecast at 0.0%.”
Reporting by Hong Kong, Shanghai, Beijing and Bengaluru newsrooms; Writing by Samuel Shen, Ryan Woo and Paritosh Bansal; Editing by Simon Cameron-Moore and Kim Coghill
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