China to set up financial stability fund, keep home prices stable

Beijing

CHINA plans to set up a financial stability fund and adopt measures to keep housing prices stable, as policymakers ramp up efforts to prevent systemic risks.

"A fund for ensuring financial stability will be established, and market- and law-based ways will be used to defuse risks and potential dangers," Premier Li Keqiang said in his annual work report, without giving more details.

While reiterating President Xi Jinping's mantra that houses are for living in, not for speculation, Li also said China will explore new models for housing development, including encouraging rentals along with purchases, and adopt city-specific measures to "facilitate positive circulation and sound development in the real estate sector".

China is moving to stem financial risks ranging from hundreds of troubled smaller rural banks to its slumping real estate market. The regulators have recently eased a year-long cap on home loans and called upon its largest bad-debt managers to join restructuring of weak developers, after firms including China Evergrande Group defaulted on more than US$7 billion in offshore bonds last year and ordinary Chinese staged rare protests over unbuilt homes and soured investment products.

Li also called on the property market to better meet reasonable housing demand for homebuyers, marking the first time non-subsidised housing is being mentioned in the key report since 2014.

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Home sales have been falling since July last year, as buyer confidence weakened during a liquidity crisis that rippled through the industry following a crackdown on excess borrowing. The drop in sales will make it harder for stressed developers to make at least US$3.7 billion in payments on dollar and onshore public bonds in March - among the heaviest monthly debt bills they face this year, according to data compiled by Bloomberg.

China will strengthen and fine-tune financial regulation, further reform the shareholding structures and corporate governance of smaller banks, and move faster to deal with their non-performing assets, Li said. The government will also support debt financing by private enterprises and aim to achieve full implementation of the registration-based initial public offering mechanism, he added.

Separately, China's central bank will increase financial support for rental housing and tailor its property policies to conditions in different cities as it largely affirms its stance since late year.

The People's Bank of China (PBOC) reiterated that it will promote the real-estate sector's healthy development, according to a Friday (March 4) statement concluding a Tuesday meeting that planned financial market regulation and credit policy work in 2022.

The PBOC will continue to implement its prudential management system for property financing and insist on the principle that "housing is for living in, not speculation", according to the statement.

The comments are in line with the government's cautiously dovish stance on the struggling property sector, indicated in a key economic planning conference in late 2021. The latest policy follows moves by more cities to relax curbs on housing and lower mortgage rates to shore up confidence.

The PBOC will boost financial support for the service sector suffering from the pandemic, according to the statement. It will prevent and resolve default risks in the bond market, continue to crack down on cryptocurrency trading and push for the rectification of online platforms, it said.

In a separate joint policy document released late on Friday, the China Banking and Insurance Regulatory Commission and the PBOC said they will support banks setting "reasonable standards" for first-time home buyers' mortgages. They aim to guide banks in satisfying the "reasonable" credit demand of buyers who meet purchase requirements and have stable income.

There are around 300 million such "new urban residents" in China, defined as those who moved to cities but haven't gained access to a hukou, or a residency permit that enables them to access local public services, as well as those who only have had a hukou for less than three years, according to the document.

The banking regulator and central bank will push for more long-term rental housing supply by supporting banks and insurers to provide credit and services to the sector. They will also encourage banks and trusts to participate in the building of affordable housing, the document said. BLOOMBERG