China Business

Apr 27, 2006

Central bank warns of real estate risks

BEIJING - China's central bank, the People's Bank of China (PBoC), says the real estate industry is absorbing too much of the country's capital, causing government concern.

"Real estate financing is making up a bigger and bigger share of the country's financial sector. The health of real estate financing is of critical importance to the health of the financial sector. We

must pay close attention to developments in both the real estate industry and home financing sectors," Wu Xiaoling, deputy governor of the central bank, told a seminar here on April 25.

Housing prices have continued to soar, despite the government's year-long efforts to stabilize prices; this has sparked grave concern that a housing bubble might burst.

According to Wu, Chinese banks' lending to the real estate sector stood at 3.07 trillion yuan (US$383.3 billion) by the end of 2005, accounting for 14.84% of all yuan-denominated lending by China's financial institutions. This is equivalent to 16.75% of the country's gross domestic product (GDP) in 2005.

Lending to individual homebuyers by China's commercial banks in 2005 totaled 1.84 trillion yuan, which account for 8.9% of the banks' total yuan lending. It is equivalent to 10% of the GDP.

Wu maintained that China has successfully established a suitable market-driven real estate system and a bank-loan-dominated housing finance system following two decades of reforms and experiments. However, she said the country's housing finance system is still dogged by many unresolved issues, such as a lack of proper lending support for lower-income homebuyers and an over-concentration of risk in the banks.

"The central bank must accelerate its research on housing finance and work for the healthy development of the sector," she said.

(Asia Pulse/XIC)

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