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Barry Naughton Comments on China's New Bank Regulator

China's New Banking Regulator Said to Warn on Government Loans

11/17/2011
Bloomberg, SFGate

China’s banking regulator warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said.

The China Banking Regulatory Commission told lenders last week to step up asset sales and debt restructuring for unprofitable local government financing vehicles that are struggling to repay loans, the person said, declining to be identified as the instructions were private. The watchdog also said banks should cut “high-risk” loans to developers, the person said.

China’s banking regulator tightened capital requirements and clamped down on off-balance sheet assets this year. Still, the International Monetary Fund this week called for closer oversight of the banks as risks increase. Home sales plunged 25 percent in October from the previous month. Industrial & Commercial Bank of China (1398) Ltd. and its three biggest local rivals have lost about $71 billion in market value this year.

 

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Barry Naughton is Sokwanlok Chair of Chinese International Affairs. He is Professor of Chinese economy, with an emphasis on issues relating to industry, trade, finance, and China's transition to a market economy. Recent research focuses on regional economic growth in the People's Republic of China and the relationship between foreign trade and investment and regional growth.

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