Some of the biggest headwinds to China’s economic outlook could be eased as the country’s authorities reportedly take sweeping measures to handle them.
Bloomberg reported on Sunday (November 13) that China is planning its most extensive rescue package to bail out its real estate market, which is mired in a deepening liquidity crunch and record slowdown.
Citing sources familiar with the matter, Bloomberg revealed that the sweeping package includes 16 measures. They would help local developers handle their liquidity crisis and loosen down-payment requirements for house buyers, among others.
The plan aimed at ensuring a stable and healthy development for the real estate sector was unveiled after the China Banking and Insurance Regulatory Commission and the People’s Bank of China on Friday, November 11, issued a notice to financial institutions.
The sources described that, under the bailout package, Chinese developers’ outstanding bank loans and trust borrowings due within the next six months can be extended for a year.
In addition, repayment on their bonds can also be extended or swapped through negotiations.
China’s property market has been plunged after the government began clamping down on real estate leverage in 2020, targeting the developers relying heavily on debt for growth.
By cracking down on the developers, the Chinese authorities hoped to restrict the debt developers could take on to fund their projects and reduce additional financial risks in the sector.
The crackdown has led the mainland’s real estate sector to fall into a debt crisis.
If confirmed, rescue measures would be the strongest sign that the authorities are easing their clampdown on the property sector.
Earlier, the Chinese government has taken various measures to defuse the real estate woes in the past few months. They included cutting interest rates, urging major state-owned banks to extend 1 trillion yuan ($140 billion) of financing by the end of this year, and providing special loans through policy banks to unfinished housing projects.
According to Bloomberg, the authorities also issued measures to recalibrate their response to the COVID pandemic on Friday. They publicly outlined a 20-point playbook, instructing officials to reduce the economic and social impact of the pandemic.
These could be policy shifts that would help ease two of the biggest headwinds to China’s economic outlook.
In their latest notice, the authorities also allowed a temporary easing of restrictions on bank lending to developers.
This is one of the most significant policy changes after the Chinese regulators began imposing caps on property lending in 2021.
The sources said those lenders not meeting the current restrictions would be given extra time to meet the requirement.
The regulators also urged banks to negotiate with homebuyers on extending mortgage repayment and promised to protect buyers’ credit scores.
The sluggish real estate market and the huge spending on COVID pandemic prevention measures have taken a toll on the Chinese government’s finances.
Until September 2022, the government incurred a broad budget deficit of 7.16 trillion yuan ($1 trillion), almost more than double the size of the deficit in 2021.
Experts said that China’s financial burden has reached its limit.