China's central bank warns of risks in housing finance
Updated: 2006-04-26 15:18
China's central bank, the People's Bank of China, says the real estate
industry is absorbing too much of the country's capital, causing government
"Real estate financing is making up a bigger and bigger share of the
country's financial sector. The health of real estate financing is of critical
importance to the health of the financial sector. We must pay close attention to
developments in both the real estate industry and home financing sectors," Wu
Xiaoling, deputy governor of the central bank, told a seminar here on Tuesday.
Housing prices have continued to soar, despite the government's year-long
efforts to stabilize prices and this has sparked grave concern that a housing
bubble might burst.
According to Wu, Chinese banks' lending to the real estate sector stood at
3.07 trillion yuan (US$380 billion ) by the end of 2005, accounting for 14.84
percent of all Renminbi lending by China's financial institutions. This is
equivalent to 16.75 percent of the country's gross domestic product (GDP) in
The lending to individual house buyers by China's commercial banks in 2005
totaled 1.84 trillion yuan (US$230 billion), which account for 8.9 percent of
the banks' total Renminbi lending. It is equivalent to 10 percent of the GDP.
Wu maintained that China has established a suitable market-driven real estate
system and a bank-loan-dominated housing finance system following two decades of
reforms and experiments.
However, she said the country's housing finance system is still dogged by
many unsolved issues, such as lack of proper form of lending for lower-income
house buyers and the over-concentration of risk in the banks.
The deputy governor noted that the bursting of the housing bubbles in Hong
Kong and Japan produced a disastrous effect on their economies, and central
banks in the region have been closely watching the sector since then.
"The central bank must accelerate its research on housing finance and work
for the healthy development of the sector," she said.