• To reboot the economy, China’s central bank has increased the amount of money available to banks to lend, a portion of which has been funnelled into real estate
• Regulators are increasingly concerned about rising debt among businesses and households, as well as a rebound in off-balance sheet lending

Chinese regulators have warned of heightened risks of an asset bubble in portions of the country’s rapidly growing property market, as efforts to free up credit to support the coronavirus-stricken economy have been diverted into real estate.
Regulators are increasingly concerned about rising leverage in the corporate and household sectors, as well as a rebound in shadow banking – informal, off-balance sheet lending by banks and other financial institutions – to fund inappropriate activities in the stock and real estate markets.
In the past few months, the China Banking and Insurance Regulatory Commission (CBIRC) has stepped up reprimands of banks for not complying with regulations on property-related lending.
“Some disorder has returned to the markets. Some high-risk shadow banking activities have been revived, and some have attempted to make a comeback in new forms and new features,” said the CBIRC in a July 11 notice.
“The leverage ratio of enterprises, households and other sectors have risen. Some funds flew into the stock and property markets violating guidelines, driving up asset bubbles.”
Last month, CBIRC fined the Hangzhou branch of Agricultural Bank of China 600,000 yuan (US$86,000) after the state-owned bank offered consumer loans that could be used to buy property.
The Ningbo branch of Bank of China, another large state-owned bank, was fined for 900,000 yuan for “illegal provision of financing for real estate companies, and allowing personal credit funds to flow into the housing market, violating regulations”, according to a notice published by the commission on July 9. The CBIRC also ordered disciplinary action against a Bank of China employee who it said was responsible for breaking the rules.
As part of its effort to boost growth, China’s central bank has significantly increased the amount of money available to banks to lend, a portion of which has been funnelled into one of the world’s hottest real estate markets.