China Will Not Suffer a Sub-prime Crisis: Former Central Bank Governor


Dai Xianglong (戴相龙), the former head of the People’s Bank of China (PBOC), said that China will not succumb to the equivalent of the sub-prime crisis that hit the US over a decade ago, despite recently uncertainty in the Chinese real estate sector.

Dai pointed to increasing problems in the Chinese real estate sector despite efforts over the past half-decade by the central government to contain risk.

“Ever since the 2016 central economic work conference, the government’s policy proposal that ‘houses are not for speculation’ has led to declines in real estate investment and an increase in defaults by real estate enterprises,” Dai said on 18 July at the “2022 China Wealth Management 50 Forum” (中国财富管理50人论坛).

“However, China will not experience the sub-prime mortgage that the US experienced in 2007, and the impact on homebuyers and owner-occupiers will not be large.”

Dai’s remarks arrive following an increasing number of construction project suspensions that have led to mortgage holders in various parts of China refusing to make repayments, triggering concern about potential systemic financial risk.

In order to deal with current problems in the Chinese real estate sector, Dai made several proposals including:

  • Strengthening confidence in in development of the real estate sector and maintaining the stability of real estate prices.
  • Housing loans must provide support to various forms of housing demand.
  • Opening up multiple residential housing financial channels.

China’s meagre Q2 year-on-year growth print of 0.4% has also caused concern for observers. Dai expects GDP growth to accelerate to more than 5% in the third and fourth quarters, and full year growth to potentially exceed 4.5%.