Chinese banks are opening more than 3 trillion yuan ($431bn) in lines of credit for cash-strapped real-estate companies suggesting a temporary emphasis on stabilizing the economy over cutting the industry’s debt.
Industrial and Commercial Bank of China the nation’s largest state-owned bank, has announced plans for 655bn yuan in credit lines for 12 borrowers including top housing company Country Garden Holdings.
The total announced credit lines from major state-owned and regional banks exceed 3.19 trillion yuan. Making them out would lift outstanding real estate development loans by about 25% from the 12.67 trillion-yuan tally at the end of September.
Fresh credit provides a lifeline for a heavily indebted property sector whose troubles have weighed on China’s economy. Like recent moves to roll back coronavirus-related restrictions the aid to real-estate developers suggests that the leadership under President Xi Jinping is focused on supporting the economy.
China Construction Bank and Agricultural Bank of China, the country’s second and third-largest state-owned banks have not disclosed specific credit lines, so more aid to the sector may be coming.
Even the announced boost will not immediately solve the debt problems in the real estate industry. Developers have a wide range of liabilities, including accounts payable and homes than have been sold but not handed over. For Country Garden, bank loans constitute only 10% or so of total liabilities.
New aid measures announced by the government on November 23 softened Beijing’s tough stance on lending to the property sector. In 2020 and 2021, the government announced a string of restrictions, such as the ‘three red lines’ which include a debt-to-equity ratio limit and a cap on real estate loans.
Real estate accounts for around 30% of China’s gross domestic product including related industries. Any change in credit to the property sector has a broad economic impact. By value, housing sales at the top 100 companies fell 25.5% on the year in November and were down by about half compared with November 2020, according to China Real Estate Information. Housing market turmoil has triggered forms of social unrest, such as mortgage strikes by purchasers of homes whose construction has been suspended.
