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Chinese Banks Turn Away from Beijing’s Property Bailout Fund, Raising Concerns

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Flagship Beijing Lending Programme Struggles to Revive China’s Property Market

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A flagship Beijing lending programme to revive the country’s debt-stricken property market has done barely any business almost a year after its launch, officials said, highlighting the difficulty for policymakers seeking to boost confidence in the world’s second-largest economy.

The Lending Programme

  • The People’s Bank of China in November announced a Rmb200bn ($27bn) facility to provide interest-free loans to six state-owned commercial banks to finance thousands of stalled property projects across the country.
  • Almost a year after the programme was launched, less than 1 per cent of the funds have been disbursed to banks.
  • Banks were supposed to match the PBoC loans with their own lending but have been unwilling to issue further debt to the ailing sector.

Challenges in the Property Sector

“For Chinese banks, the downside of lending to distressed property projects far outweighs the upside,” said Larry Hu, chief China economist at Macquarie.

Plunging sales and mounting liabilities have forced many cash-strapped developers to suspend construction, leaving housing projects in limbo.

Tens of thousands of frustrated homebuyers have launched boycotts, while construction delays have deterred new buyers from entering the market.

Importance of Boosting the Property Sector

Economists said boosting the sector was critical to putting a floor under weak consumer demand in the economy, which has also been hit by a plunge in exports and flagging industrial production.

China’s State Council, the cabinet, in July highlighted “ensuring the delivery of [unfinished] apartments” as a policy priority.

Measures to Revive the Sector

  • Policymakers have unveiled a series of measures, led by the PBoC-backed bailout fund and low-interest loans from policy banks, targeted at restarting construction.
  • Large cities have cut minimum mortgage rates and downpayments to spur demand.

Hurdles in the Lending Programme

State-owned banks have not taken up the bailout fund due to a lack of suitable recipients for the funds.

Many developers could struggle to generate cash from unfinished projects to repay loans as their properties are pre-sold or have already been pledged to existing creditors.

Analysts’ Scepticism

In a report published last month, the PBoC said the fund would continue operating through May, adding that it would “encourage and guide” financial institutions to provide funding for stalled projects.

But analysts expressed scepticism about its prospects.

The PBoC, China Development Bank and China Construction Bank did not immediately respond to a request for comment.

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