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Some China state-backed financiers cold shoulder property rescue call: Sources

HONG KONG/SHANGHAI (REUTERS) – Some of China’s state-backed financial institutions are pushing back on Beijing’s calls to support the embattled property sector due to concerns about the impact of such exposure on their balance sheets, seven people with knowledge of the matter said.

Without explicit financial backstop from Beijing, senior executives at some of the institutions are wary of engaging with cash-strapped developers and later dealing with potential losses of their own, said two of the sources.

Signing off on financial support to struggling developers has become a concern as employees are increasingly held accountable by authorities for poor lending and investment decisions, said the two sources.

China’s property sector, which accounts for about a quarter of the economy, has been lurching from crisis to crisis since the summer of 2020 as a result of regulators stepping in to cut excess leverage in the sector, which led some developers to default on their debts and struggle to complete projects.

Property investment, home sales and new construction are plummeting as the troubles scare off potential buyers.

Last week, Reuters reported, citing sources, that China’s banking regulator was scrutinising property sector loans at some local and foreign lenders to assess systemic risks, as the real estate sector’s debt crisis worsens.

The reluctance of some Chinese lenders shows the challenges and limited options for Beijing to help revive the sector.

Chinese authorities have held multiple closed-door meetings in recent weeks during which banks and other financial institutions including securities companies were encouraged to support fundraising by developers, the two sources said.

Although the People’s Bank of China (PBOC) has been nudging state-backed financial firms to support fundraising by stronger developers, it has so far refrained from issuing specific orders, according two separate sources.

Officials at two state banks and three state-backed asset managers said they have been trimming their holdings of property bonds since early this year despite several rounds of regulatory “window guidance” – verbal instructions from regulators to mainly Chinese companies – they received to support the sector.

All the sources declined to be identified for this story due to the sensitivity of the matter.

The PBOC and the China Banking and Insurance Regulatory Commission (CBIRC) did not respond to Reuters requests for comment.