Chinese Central Bank Signals Stricter Regulation of Highly Leveraged Real Estate Companies

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The People’s Bank of China (PBOC) has signalled greater scrutiny of heavily leveraged real estate enterprises at its latest meeting in Beijing.

On 29 July PBOC convened a meeting in Beijing on adjustment and optimisation of the loan structure of China’s banking sector financial institutions, with key lenders including China Construction Bank, Bank of Communications and China CITIC Bank discussing their key methods for loan structure adjustment.

The meeting called for “changing the traditional dependence upon lending, rational control of real estate loan provision and strengthening of lending support for key areas and weak links in economic and social development.”

The meeting stressed four key focal points for work in the near future:

  1. Increasing the share of medium and long-term loans to the manufacturing sector, cultivating analytical and risk assessment capability based on the unique “light asset” model of tech venture enterprises and high-tech manufacturing;
  2. Continuing to properly provide financial services to micro and small enterprises (MSE). Focusing on raising the ability to provide financial services to MSE’s, improve loan resource allocations and loan risk assessment;
  3. Firmly upholding the position that “houses are for occupation, not speculation” – strengthening regulation and risk warnings in relation to the financial conduct of large-scale real estate enterprises that engage in highly leveraged operations, strengthening regulation of funds entering real estate via bank wealth management or entrusted loan channels, and strictly prohibiting the illegal use of consumer loans for home purchases;
  4. Expanding lending support for modern services, rural village revival and poverty alleviation.

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