![]() ![]() Heavy industries such as steel feed directly off construction, while local governments, especially in smaller cities, finance themselves with land sales to developers. ![]() Unfortunately, banks’ seemingly manageable direct exposure to property is deceptive because of the housing market’s deep links to two other key borrowers: Heavy industry and local governments. Down payments are large and loans tend to be recourse, meaning banks can go after other assets besides the house if homeowners walk away. Moreover, the biggest chunk-individual home mortgages-is probably relatively safe due to the way they are structured in China. Total loans to property developers and home buyers peaked at nearly 30% of commercial banks’ loan books in 2019, according to central bank data. ![]() Property is the heart of China’s economy, driving around a quarter of total economic activity.īut both banks and China’s “shadow banks" like trust firms have rapidly shed property exposure in recent years. Moreover, widespread financial turbulence can’t be ruled out-especially if housing and land prices fall too fast-or if Beijing doesn’t do more to support cash-strapped local governments and small lenders. ![]()
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