top banking and insurance regulator, country’s financial sector, excessive exposure to the property sector

China’s top banking and insurance regulator has sounded the alarm over the country’s red-hot residential property market.

Investors were warned about severe losses arising from a potential boom and bust cycle in the sector, by Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), on Thursday. Guo, who was speaking at Lujiazui Forum in Shanghai, also warned investors against speculation on the yuan’s foreign exchange rate and gold and commodity futures.

“Those individual investors who participate in trading [of high-risk products] are indeed taking a gamble. They are set to suffer losses, just like those who believe property prices will never fall. At the end, they will pay a big price,” he said.

Chinese policymakers and financial regulators want to prevent a housing market collapse such as that seen in Japan in the late 1980s. They have launched austerity measures to cool buying interest whenever big price increases have occurred.

Beijing also wants to contain risks facing the country’s financial sector. In November last year, Guo described banks’ excessive exposure to the property sector as the “biggest grey rhino risk” the financial system faces. He was writing in a book from the central government that explains the country’s economic priorities and development plan for 2035. He said property related loans made up 39 per cent of all bank lending in China, or 70 trillion yuan (US$10.95 trillion).

“Guo’s remarks show regulators are wary of housing bubbles,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “Risks arising from a potential bursting of home market bubbles could be detrimental to the financial system.”

Home prices have risen quickly across the country this year, bolstered by expectations of a stronger economic recovery. In March, the average new home prices in 70 major cities climbed 0.5 per cent from a month earlier, their quickest pace since August 2020, according to the National Bureau of Statistics. This was followed by a 0.48 per cent month-on-month increase in April.

Over the past three decades, China’s real estate industry has been a pillar of the national economy. Home prices have risen continuously despite several rounds of crackdowns on housing speculation by central and local governments.

China’s most developed cities, such as Shanghai and Shenzhen, have this year rolled out stringent rules to curb home buying euphoria. But demand for property has spilled over into China’s smaller cities amid a belief that home prices in the country will maintain an upwards momentum.

Investors have also been tempted by the yuan strengthening against the US dollar this year. The Chinese currency has gained because of loose monetary policy in the US, which hit a three-year high in May. Regulators in China have warned against the risks posed by hot money flows.

Fluctuating commodity prices have also lured some Chinese traders with high risk appetites to increase their investment in futures contracts.


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