Chinese regulators have called for stress tests on loans to a range of industries, including cement and steel, whose fortunes are closely tied to property markets on the brink of a correction, official media reported yesterday.
The tests, part of a broader investigation into banks’ ability to withstand falls in housing prices, point to the government’s determination to hold tightening policies in place until the property sector cools off.
The tests envisage a 60 percent plunge in housing prices, but analysts warned against reading too much into the extreme scenario, saying the market was likely to weaken, but not collapse in such a spectacular fashion.
“The banking system has made quite a lot of loans to industries upstream and downstream from the real estate market and their risks are intimately connected to the real estate market,” the Shanghai Securities News said. “Therefore, regulatory agencies have demanded that corresponding stress tests should also be conducted for industries such as steel, cement and building materials.”
China stepped up a tightening campaign earlier this year to squeeze any bubbles out of its red-hot property market.
The China Banking Regulatory Commission (CBRC) declined to comment directly on reports of the ultra-stringent bank stress tests, but in a statement on its Web site late on Thursday, it said that stress tests differed from bank to bank and formed part of continual efforts at risk management.
Hypothetical scenarios examined in stress tests did not reflect regulators’ forecasts for the property sector and nor did they herald any change in policy, the CBRC added.
“The tests show the government is not happy with the current prices. Prices haven’t been falling deeply enough,” said Cao Xute (曹旭特), a property analyst with Sinolink Securities (國金證券) in Beijing. “If prices don’t fall in the next couple of months, the government could tighten further, through monetary and tax measures.”
Industry insiders said that would not be necessary.
“Price growth in key cities has declined and property sales have plummeted,” Zhu Zhongyi (朱中一), vice-chairman of the China Real Estate Association, a top industry think tank, was quoted as saying in the China Daily.
Concerns have centered on top-tier markets where price rises have been most extreme.
Banks in seven cities, including Beijing, Shanghai and Shenzhen, have been asked to examine the impact of a fall in property values of up to 60 percent, the official China Securities Journal reported. Banks in the cities must submit the stress test results to their provincial regulator before next Friday, it added.
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