China considers major plan to rescue real estate industry

Bloomberg news agency on November 23 quoted sources revealing that China is considering many new measures to rescue the real estate industry in the context of the prolonged crisis that is affecting growth and threatening the stability of the economy .

Country Garden's housing project in Yangzhou city, China

One of them is allowing banks to provide “working capital loans” to some property developers. Unlike usual lending, these loans do not require assets or land as collateral and will be disbursed for day-to-day operations. The measure will help provide funds for companies to repay debts, the sources said.

In addition, officials are considering a mechanism that would allow a bank to take charge of supporting a particular troubled developer by coordinating with other creditors on a financing plan.

If approved, it would be China's most aggressive effort to pump $446 billion into stabilizing its property sector and hand over millions of unfinished homes.

However, enforcement requires regulators to exempt banks from liability for providing high-risk loans.

China's $57 trillion banking sector is struggling as profit margins shrink and bad debt rises to a record high. At the same time, authorities are increasing pressure on banks to support the economy and the property sector. China's National People's Congress said this week that banks should increase funding for property developers to reduce the risk of further defaults and help some housing projects complete. Commercial banks' net interest margins fell to a record 1.73% at the end of September, below the threshold for profitability (1.8%).

News of the new rescue plan sent property developer shares up as much as 8.2% on November 23. Dollar bonds of some companies such as Country Garden rose this week on the positive signs. Chinese authorities are also drawing up a preliminary list of 50 real estate companies that will receive financial support, including companies in deep trouble such as Country Garden and Sino-Ocean Group.

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