New moves to stabilise China property, stock markets

China's top economic officials have pledged fresh steps to keep two of the country's key markets - property and stock - on an even footing amid rising risks, as growth slows in the world's No. 2 economy.

Amid a rebound in home prices in its big cities, banks are facing rising credit risks, central bank governor Zhou Xiaochuan warned yesterday at a briefing on the sidelines of China's annual legislative session.

There will also be a crackdown on unauthorised lending in the real estate sector as it raises the risks of bad debts, endangering not only the industry but also the entire financial system, bank officials said.

At a separate press conference later in the day, newly appointed securities regulator chief Liu Shiyu said a circuit-breaker mechanism will not be reintroduced in the stock market for "the next few years".

It was widely blamed for worsening a crash in China's notoriously volatile market earlier this year and was dismantled after a few days.

Without giving a timeframe, Mr Liu said China must continue with reforms on stock market listings by moving to a registration-based initial public offering system. Such a system would end the regulator's intervention in pricing and allow firms to go public faster.

Yesterday, Mr Zhou told reporters that property prices have begun to diverge widely between larger and smaller cities. With the inventory of unsold homes soaring more than 15 per cent last year from 2014, the national housing market faces "relatively big destocking pressures", he added.

"(Addressing the property risks) requires better guidance from officials in individual cities... but banks should also closely monitor customer creditworthiness in mortgage lending," he said.

Mr Pan Gongsheng, the central bank's deputy governor who also attended the briefing, said the government has started clamping down on unauthorised lending.

This happens, for instance, when real estate agents or developers disburse loans to buyers to make downpayments.

But Mr Pan assuaged concerns that bad mortgages might pose an imminent risk. Home loans account for only 14 per cent of banks' total loans, with a bad loan ratio of just 0.38 per cent, he said.

Still, rising debt levels have been a concern for China, even as its economic growth slowed last year to 6.9 per cent, its weakest in 25 years.

Growing weakness in the crucial property sector, which accounts for more than 15 per cent of China's annual gross domestic product, has sparked fears it might drag down the broader economy.

In light of this and other global uncertainties, Mr Zhou said Beijing will keep its monetary policy flexible to help counter possible economic shocks, but will not resort to excessive stimulus to bolster growth.

His comments came even as fresh data yesterday - that both industrial production and retail sales grew less than forecasted in the first two months of the year - suggested the need for more stimulus.

Beijing has set a yearly growth target of at least 6.5 per cent from this year to 2020, in what many experts have labelled as "ambitious" amid tough economic reforms.

"If there isn't any big economic or financial turmoil, we'll keep with a prudent monetary policy," Mr Zhou said, adding that domestic demand, consumption and innovation can be tapped to drive growth instead.

Under the banner of "prudent" policy, the bank has cut interest rates six times since November 2014 and reduced the amount of cash that banks must hold as reserves .

In Hong Kong, Financial Secretary John Tsang defended the city's economy after Moody's Investors Service downgraded its long-term debt outlook to negative from stable because it sees the city's credit profile tracking China's, reported Bloomberg yesterday.

Mr Tsang said: "Hong Kong is in a good position to benefit from the structural rebalancing in the mainland's economy, from investment to consumption."

esthert@sph.com.sg

This article was first published on March 13, 2016.
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