China to Set Up Financial Stability Fund, Steady Home Prices

(Bloomberg) -- China plans to set up a financial stability fund and adopt measures to keep housing prices stable, as policy makers ramp up efforts to prevent systemic risks. 

“A fund for ensuring financial stability will be established, and market- and law-based ways will be used to defuse risks and potential dangers,” Premier Li Keqiang said in his annual work report, without giving more details. 

While reiterating President Xi Jinping’s mantra that houses are for living in, not for speculation, Li also said China will explore new models for housing development, including encouraging rentals along with purchases, and adopt city-specific measures to “facilitate positive circulation and sound development in the real estate sector.”

China is moving to stem financial risks ranging from hundreds of troubled smaller rural banks to its slumping real estate market. The regulators have recently eased a year-long cap on home loans and called upon its largest bad-debt managers to join restructuring of weak developers, after firms including China Evergrande Group defaulted on more than $7 billion in offshore bonds last year and ordinary Chinese staged rare protests over unbuilt homes and soured investment products. 

Li also called on property market to better meet reasonable housing demand for homebuyers, marking the first time non-subsidized housing being mentioned in the key report since 2014. The country’s top economic planning body, the National Development & Reform Commission, called on taking solid steps to manage risks related to high-risk real estate companies in a separate report. 

Home sales have been falling since July last year, as buyer confidence weakened during a liquidity crisis that rippled through the industry following a crackdown on excess borrowing. The drop in sales will make it harder for stressed developers to make at least $3.7 billion in payments on dollar and onshore public bonds in March -- among the heaviest monthly debt bills they face this year, according to data compiled by Bloomberg. 

China will strengthen and fine-tune financial regulation, further reform the shareholding structures and corporate governance of smaller banks, and move faster to deal with their nonperforming assets, Li said. The government will also support debt financing by private enterprises and aim to achieve full implementation of the registration-based initial public offering mechanism, he added.

China will also properly manage high-risk local financial institutions, according to the NDRC report.  

The authorities have been urging provincial governments to take the responsibility to supervise and resolve risks stemming from local financial institutions. The central bank has sought public opinions for a regulation requiring local authorities to strengthen coordination with the central government in supervising local financial institutions. 

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With assistance from Bloomberg