| BEIJING, March 29
BEIJING, March 29 Moody's Investors Service
warned on Wednesday that the financial risks facing China from a
potential property downturn have grown as record lending has
made banks more risk-prone while the government is less able to
combat those risks.
China extended a record 12.65 trillion Chinese yuan ($1.84
trillion) of loans in 2016 to support economic growth, half of
which was household loans - mostly mortgages - sending new home
prices to five-year highs in the year.
Policymakers now face the prospect of a nasty property
market crash damaging the economy.
More large cities on China's wealthy east coast - Fuzhou,
Xiamen, and Hangzhou - stepped up property curbs again this
week, following Beijing's drastic moves that analysts say could
freeze the market.
Fuzhou, Xiamen and Hangzhou home prices rose 23.7 percent,
36.5 percent and 25.4 percent year-on-year in February,
according to statistics bureau data.
Recent weeks have seen the biggest wave of tightening of
home purchase and lending rules since October, as China's
red-hot property market picked up pace in February after price
gains had slowed in the previous months.
"Previously, the banking sector's exposure to the property
market was relatively modest," says Lillian Li, a Moody's Vice
President and Senior Analyst.
"But the rising share of mortgages in new bank credit, the
risk from property pledged as collateral on other loans, and the
increasing role of shadow banks as providers of finance to the
property sector have all raised the financial system's
vulnerability to a property-related shock," she said.
While risks are rising, the scope of the Chinese authorities
for mitigating such risks through fiscal and monetary policy has
become more limited, as such moves may exacerbate other economic
challenges such as capital outflows which have become
increasingly pressing, Moody's said.
It noted the central government's fiscal balance had
"deteriorated" and government leverage at 36.7 percent was no
The rating agency expects China to increase its deficit to
3.3-3.5 percent of GDP over the next few years.
($1 = 6.8930 Chinese yuan renminbi)
(Reporting by Yawen Chen and Elias Glenn; Editing by Eric