Moody’s warns China faces risks from property downturn
April 3, 2017 Category Finance, Weekly
Moody’s Investors Service warned that the financial risks facing China from a potential property downturn have grown as record lending has made banks more risk-prone while the government is less able to combat those risks. China extended a record CNY12.65 trillion of loans in 2016 to support economic growth, half of them household loans – mostly mortgages – sending new home prices to five-year highs in the year. More large cities on China’s wealthy East coast – Fuzhou, Xiamen and Hangzhou – stepped up property curbs again last week, following Beijing’s drastic moves that analysts say could freeze the market. Fuzhou, Xiamen and Hangzhou home prices rose 23.7%, 36.5% and 25.4% year-on-year in February. Recent weeks have seen the biggest wave of tightening of home purchase and lending rules since October. “Previously, the banking sector’s exposure to the property market was relatively modest,” said Lillian Li, Moody’s Vice President and Senior Analyst. “But the rising share of mortgages in new bank credit, the risk from property pledged as collateral on other loans, and the increasing role of shadow banks as providers of finance to the property sector have all raised the financial system’s vulnerability to a property-related shock,” she said. While risks are rising, the scope of the Chinese authorities for mitigating such risks through fiscal and monetary policy has become more limited, as such moves may exacerbate other economic challenges such as capital outflows, which have become increasingly pressing, Moody’s said. The rating agency expects China to increase its deficit to 3.3%-3.5% of GDP over the next few years, the South China Morning Post reports.
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