Chinese Supervision Authorities See Little Impact from Evergrande Default

SHANGHAI, Oct 22 (SMM) - In response to the recent hot events in the real estate industry, many Chinese regulatory agencies have recently intensively spoken out on different occasions.

On the whole, the Chinese regulatory authorities agreed that the risk spillovers of individual real estate companies like Evergrande in the event of defaults on the financial system are generally controllable, and the real estate industry as a whole will maintain a healthy and stable development.

Financial risk of Evergrande’s default is controllable

In recent months, the debt crisis of Evergrande Group has continued to ferment, and it has caused the market to continue to raise concerns about its credit risk.

"In general, Evergrande's risk is a case-by-case risk, and its spillover to the financial industry is controllable." Yi Gang, Governor of the People's Bank of China, recently pointed out at the G30 International Banking Conference in 2021.

Liu Zhongrui, head of the Statistical Information and Risk Monitoring Department of the China Banking and Insurance Regulatory Commission, also stated at the third quarter press conference today that the problem of Evergrande Group is an individual phenomenon. The reputation of the company has a big impact.

He also revealed that the Evergrande Group has little exposure to financial liabilities in the banking industry as a whole. Moreover, it is relatively scattered among the banks. From the perspective of a single bank, the overall risk exposure is not large, and the overall risk is controllable.

Regulatory authorities have also formulated specific measures to deal with this type of risk.

Yi Gang said that the principle of responding to the Evergrande incident is to strictly follow the order of compensation prescribed by law, and fully respect and protect the legal rights and interests of creditors and property owners. In this process, it is especially important to protect the legitimate rights and interests of consumers who have purchased houses. The principle of rule of law will be adhered to to ensure that the legitimate rights and interests of all creditors and stakeholders are treated fairly. In this process, prevent Evergrande’s risks from spreading to other real estate companies; and avoid risk transmission to the financial sector.

Regarding the above incidents, the various regulatory authorities believe that it will not have a major impact.

Pan Gongsheng, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, pointed out that recent fluctuations in China's real estate market and related financial markets are the stress response of market entities after individual corporate defaults. Under the guidance of the financial management department, the excessive contraction of risk appetite in financial institutions and financial markets has gradually been corrected, and financing behaviour and financial market prices are gradually returning to normal.

Liu Zhongrui also said that the key to the credibility of Chinese-funded enterprises lies in the stability and improvement of China's macro-economy, which is the foundation of Chinese-funded enterprises' credit and also laid the foundation for the long-term stable development of real estate enterprises. "The problems of individual companies will not have a big impact on the entire industry or the entire Chinese-funded enterprise."

"For the first time, the central bank has set a tone for the Evergrande issue, which will help control the real estate credit risk spillover." The CITIC Securities real estate team believes that this will help quell credit risks.

The overall healthy development of the real estate market will not change

Although there are individual problems in the real estate market, the overall risk is controllable. Reasonable funding needs are being met, and the overall situation of the healthy development of the real estate market will not change.

The relevant person in charge of the China Banking and Insurance Regulatory Commission said that the financial industry has done a lot of work in maintaining the healthy development of the real estate market in recent years, including actively implementing the housing loan concentration policy, ensuring the credit needs of the rigid needs group, cooperating with local governments in real estate regulation, and strictly controlling the housing loan sector. Violations of laws and regulations, increase financial support for rental housing, etc.

The People's Bank of China has also implemented macro-control over the real estate market and established a long-term management mechanism in accordance with the guidelines and policies determined by the central government. Pan Gongsheng pointed out that the current trend of financialisation and bubbles in the real estate market has been curbed, the real estate market’s land prices, housing prices, and expectations have remained stable, and the real estate industry has generally developed in a healthy manner.

The latest data from the China Banking and Insurance Regulatory Commission show that as of the end of September, the growth rate of real estate loans fell to 8.6%, nearly 3 percentage points lower than the growth rate of all loans.

The sales prices of newly built commercial houses and second-hand houses in first-tier cities increased by 5.3% and 7.7% respectively from the previous month, with the increase down 0.4 percentage point and 1.4 percentage points respectively on the month.

Recently, Liu Wuxing, deputy director of the Price Monitoring Center of the Development and Reform Commission, led a team to Changsha to investigate and pointed out that it is necessary to continue to maintain control and strengthen market monitoring, especially to pay close attention to some business and project management issues, put risk prevention in the first place, and ensure the real estate market will develop steadily and healthily.

On the one hand, the regulatory authorities will continue to strictly control the areas that violate laws and regulations; on the other hand, they will still give adequate support to other reasonable areas.