Shenzhen and Guangzhou Crack Down on Use of Micro-loan Funds for Illicit Real Estate Investment


The Guangdong province mega-cities of Shenzhen and Guangzhou have cracked down on micro-loan companies extending credit to investors in the regional real estate market.

On 2 June the Guangzhou financial authority issued a notice to local micro-loan companies within its jurisdiction calling for them to “comprehensively suspend bridging loan and foreclosure loan operations” involving real estate assets.

The notice stressed that micro-loan companies in Guangzhou are “prohibited from directly or covertly providing residential mortgages,” and stated that their reduction and settlement of real-estate-related credit operations would be a key part of their regulatory assessments in 2021.

Guangzhou regulators also called for micro-loan companies to “earnestly verify the actual intentions of client loans,” reiterating that they are “not permitted to make loans to customers with the intention of investing loan funds in the real estate market or to repay residential mortgages.”

“In lending contracts, [micro-loan companies] should clearly stipulate that customers cannot misappropriate loan funds and cannot invest loan funds in real estate, as well as clearly outline penalty measures for clients in breach of these provisions, such as requiring that they make repayments in advance, including them on client backlists, and imposing the payment of fines.”

On the same date the Shenzhen financial authority announced that it had recently summoned five major micro-loan companies for disciplinary “regulatory discussions,” in order to “prevent business loan funds from illicitly entering the real estate sector.”

These companies included Fude (富德), Qilian (企联), Jinyingxin (金赢信), Daxin (大信) and Yaliancai (亚联财).

“All companies must strengthen inspections of the veracity of loan usage…borrowers are not permitted to use loan funds for illicit investment in the real estate market,” said the authority.

“In future the state of strict regulation will be maintained, and [regulators] will strike severely against illicit financing on the real estate market, and spur micro-loan companies to earnestly return to their original cause of servicing the real economy.

“All companies should focus on internal inspections of cooperation with real estate intermediaries, and adopt prompt measures where it is discovered that loan funds are illicitly entering the real estate market.”

The Shenzhen financial regulator also held disciplinary regulatory discussions with nine financial guarantee companies that engage in foreclosure guarantee operations.

The Shenzhen authorities called for financial guarantee companies to inspect their loan guarantee and entrustment loan operations involving property, and to liquidate such operations as well as report them to local officials where any regulatory breaches are uncovered.

In March of this year the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBOC) issued the “Notice Concerning the Prevention of Business Loans from Illicitly Entering the Real Estate Sector” (关于防止经营用途贷款违规流入房地产领域的通知).

The Notice called for local regulatory agencies to complete specialised inspections of the illicit use of business loans to fund real estate investments prior to 31 May 2021.