The China Banking and Insurance Regulatory Commission (CBIRC) said that it will step up pressure on a range of financial sub-sectors through the remainder of 2021, including the real estate sector, wealth management and online platforms.
At a press conference held on 7 September a CBIRC spokesperson said that it would “continue to improve real estate financial regulatory measures, prevent the excessive concentration of real estate lending, and expedite positive cycles between finance and real estate.”
CBIRC said it would focus on five areas including:
- Effectively regulating the “sluice gate” of real estate loans.
- Curbing the illicit flow of business loans into the real estate sector.
- Strict punishment of breaches of laws and regulations.
- Implementation of a diversified real estate loan policy.
- Financial support for the residential leasing market.
With regard to “regulating the sluice gate,” CBIRC said it would uphold prudential regulatory standards for real estate development loans and personal mortgages, and strictly prevent excessive concentration of real estate loans.
CBIRC has already completed specialist inspections of the illicit flows of business loans into real estate, and said that in future it would exercise “zero tolerance” for any illicit behaviour uncovered.
CBIRC has also directed banking and insurance institutions in China to expand their support for social welfare rental homes, and pushed for insurance funds to support the development of the long-term leasing market.
The authority is also working with the Chinese central bank to drive trials of real estate investment trusts (REIT’s).
According to CBIRC this suite of policies has already taken effect, leading to the “five ongoing declines” (五个持续下降) as of the end of July including:
- YoY growth in real estate loans hitting an eight year low of 8.7%, and falling below overall growth in lending by 3 percentage points.
- 10 consecutive months of declines in the real estate concentration index.
- Real estate loans as a share of all lending declining by 0.95% compared to the same period last year.
- The scale of real estate trusts declining continuously since June 2019, and the real estate trust loan balance falling around 15% compared to the same period last year.
- An ongoing decline for nearly a year in the investment of wealth management product (WMP) proceeds in non-standard real estate assets, with the related WMP balance falling by 42% compared to the same period last year.
CBIRC also points out that investment in the real estate sector by banks via special-purpose vehicles has fallen for 18 consecutive months.
Online Finance and fintech
CBIRC reiterated a range of principles for regulation and rectification of online platforms that engage in financial activities including:
- Requiring that all financial operations of online platforms be lawfully and comprehensively included within regulation.
- The requirement that all financial operations by licensed.
- Eradicating regulatory arbitrage.
- Zero tolerance for any forms of illicit financial activity.
- Resolutely breaking down monopolies, and upholding public interests as well as a fair and competitive market order.
- Pragmatic risk prevention and maintenance of financial stability.
Chinese financial regulators have already summoned 13 of China’s top online platforms for “regulatory discussions,” with CBIRC saying that they are “engaging in deep self-inspection as well as formulating rectification plans in accordance with laws and regulatory requirements.”
“There have been significant progress and results across areas including improvements to corporate governance, preventing the disorderly expansion of capital, compliant and prudential undertaking of online deposit and loan operations, driving compliant operations of micro-loans and consumer finance companies, standardising the development of online insurance operations, and strengthening protection of the rights and interests of consumers,” said a CBIRC spokesperson.
Dong Ximiao (董希淼), chief researcher with Merchant Union Finance, said that calls for rectification and strengthening of regulation were not for the purpose of putting pressure on online platforms or curbing fintech development, or to stymie financial innovation.
“Strengthening anti-trust regulation and creating a more fair and competitive market order will help to stimulate the vitality of market actors and drive positive fintech innovations,” said Dong.
“Regulators should further improve laws and regulations, as well as strengthen the vigour of the systemic guarantees that are provided by regulation.”
Wealth management operations
With less than four months left before the end of the transitional period for the new asset management rules first introduced in 2018, CBIRC said that at present “the progress of rectification is in line with expectations.”
“As of the end of July, nearly 70% of the rectification tasks for all outstanding wealth management operations have been completed, and it is expected that the majority of banking sector institutions can complete rectification before the end of the year,” said CBIRC.
“Wealth management operations are making the orderly transition in accordance with regulatory guidance, with continuous structural optimisation, a stronger shift towards net value products, and continued retraction of risk.
“As of the end of July, net-value wealth management products accounted for over 80% of the total, and interbank wealth management products had contracted 96% compared to their peak value.
“Principal guaranteed and non-compliant short-term products have fallen by over 98% compared to when the new asset regulations were unveiled.”
Members of China’s bank wealth management sector said that while there was still pressure at some banks to get rid of outdated wealth management products, there was no expectation that the transitional period for the new wealth management regulations would be further extended.