Peoples' Bank Moves Against Property Lending
The Peoples' Bank of China, China's central bank, has
moved to curtail lending to the property sector out of
fear that China's property sector has become overheated.
Beginning last week, it has moved to ban working capital
loans to developers, and has started to rein in bank loans
to the sector. New requirements stipulate that developers
must put up at least 30 percent of a project's cost, and
discourage lending for pre-sold projects and luxury flats.
It is not clear if outstanding loans will be recalled.
If there is a recall, it could reach as much as 180 billion
yuan (US$21.68 billion), according to Chinese bankers.
Some bankers believe there will be an orderly re-scheduling
and recall of loans. Others expect that the only loans
affected will be those which did not conform to proper
lending practices.
Recently, China's banking sector has been rocked by the
Zhou Zhengyi loan scandal. Zhou's Nongkai Group is currently
under investigation for making payments to banking officials
in Hong Kong and Shanghai to obtain property development
loans.
This latest move by the Peoples' Bank is seen as a move
to force retail banks to cut lending. Former Chinese premier
Zhu Rongji warned in November last year that Hong Kong
today could be Shenzhen tomorrow. This is a reference
to Hong Kong's property bubble, in which property prices
have come down by 60 percent since 1997. Zhu is widely
respected in China for his conservative economic policies,
which many believe have contributed to China's solid growth
over the past decade in spite of severe global and regional
economic challenges.
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