Financial China

Default risks goad Beijing into loosening curbs

  • Published 12 Jan 2012

During 2012 authorities are set to relax restrictions they have imposed on bank support for local government financing vehicles (LGFVs) and on the property market because the rising risk of defaults among LGFV and trust companies will oblige Beijing into a softer stance. Some aspects of this predicted relaxation may be announced and some, such as a few recent initiatives, may be communicated through largely confidential “window guidance” from regulators to financial institutions.

Some possible forms of “fine tuning” of restrictive policies would include lax enforcement (or non-enforcement) of the 75% loan-to-deposit rule on bank lending, permitting an increase in property-related trust product issuance (to boost financing for property companies), encouraging banks to roll over non-performing loans to LGFVs, allowing banks to reduce downpayment ratios on mortgage loans and boost lending to some property developers (see chart 1).

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