China to further curb lending to developers
Move aimed at diversifying risk to banks: official
(BEIJING) China plans to introduce new rules this year that will further restrict banks' lending to property developers, China Central Television reported yesterday, citing Shen Jianzhong, a deputy director at the Construction Ministry.
The new rules will force property companies to raise money via means such as bond and share sales 'to help diversify the risk', the report cited Mr Shen as saying. China's banks lend more than 60 per cent of the funds raised for property developments, exposing them to the risk of default, it said.
The central bank last June banned banks from making loans to developers for land purchases and from lending more than 70 per cent of the value of property projects. It also curtailed lending for luxury villas and expensive apartments amid concern that too many were being built.
Li Deshui, a director at the statistics bureau, said on Tuesday that pockets of the economy, including real estate, are at risk of oversupply. A glut may force developers to discount, possibly forcing some into bankruptcy and hampering government efforts to clean up a banking system saddled with an estimated US$400 billion of bad loans.
China spent US$45 billion of its foreign currency reserves last year to help China Construction Bank and Bank of China - two of the nation's three largest lenders - reduce bad loans, the result of decades of state-directed lending to companies that weren't commercially viable.
Total property investment in the first 11 months of 2003 rose 32.5 per cent to a record 828.5 billion yuan (S$170 billion), state-run Xinhua said earlier. The average annual growth rate in the four years leading up to 2003 was about 20 per cent after China introduced housing reforms in 1998.
More than half of China's real estate spending went into five cities, including Beijing and Shanghai, the report said. - Bloomberg
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