Money

China's bank regulator sees growing real estate risks

(Agencies)
Updated: 2010-06-15 15:30

Financing Vehicles

The watchdog said concerns about bank lending to local government financing vehicles "weighs high" on its supervisory agenda as some banks have accumulated "large" exposures to them.

Local governments in China have been raising funds through the vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on such loans could trigger a "gigantic wave" of bad debts as projects are left without funding, Northwestern University Professor Victor Shih said in March.

Related readings:  Lenders, officials urged to keep tight leash on local debt units  China orders local governments to ensure repayment  Tackle local debt units, China tells banks, officials  China's cabinet warns over bank debt  Property prices heading for a slump, say experts  China real estate bubble bursts in bond market

China ordered local governments to ensure repayment of debts by their financing units and concentrate on completing projects already under way. Financing units that fund only public projects and rely on fiscal income to repay debt should stop spending, the State Council said earlier this month.

The forces driving a sustained growth in China's economy remain weak, it said. Structural imbalances are "acute," external trade is threatened by rising protectionism and unemployment pressures remain severe, according to the report.

"All these pose further constraint for a substantial and meaningful rebound," the report said.

China's changing macroeconomic environment and the acceleration of the economic restructuring means the possibility of resurgence in credit risks or losses "remains high," the watchdog said in the annual report.

"Close attention needs to be paid to the potential sovereign risks of some countries and regions as their sovereign debt ratings have been or will be downgraded," the CBRC said. The Chinese operations of some foreign financial institutions facing high risks should also be closely monitored, it said.