China’s central bank will provide cheap loans to financial firms to buy bonds issued by ailing developers. This is reported by the Reuters news agency based on anonymous insiders. It would be the most extensive support from the Chinese government to date to the country’s debt-hit real estate sector.
The insiders said that the central bank hopes the loans will improve market sentiment towards the highly indebted real estate sector and save a number of private developers from collapse. The central bank did not immediately respond to a request from Reuters for comment on the planned measures.
China has stepped up support to the real estate sector in recent weeks as many developers could no longer meet their debt obligations and were forced to halt construction. The real estate sector represents a quarter of the Chinese economy, which is already under pressure from the country’s strict corona restrictions.
The country’s largest commercial banks have already pledged at least 155 billion euros in credit to project developers this week. The central bank is also drawing up an “allowlist” of quality and systemically important developers who will receive broader support from Beijing to improve their balance sheets. In addition, at least three private property developers received the green light this month to raise almost 7 billion euros through bond issuance.
Beijing’s support measures for the real estate sector mark a turnaround in the Chinese government’s policy. In 2020, the authorities started to crack down on speculators and project developers who had financed the unprecedented growth in the real estate sector for years with huge debts.
However, due to the crackdown, real estate sales and prices plummeted, developers ran into financial difficulties, and construction projects were halted. In addition, those building freezes enraged homeowners who stopped paying their mortgages because developers failed to complete their homes.