Financial Services Commission: "China Real Estate Instability Unlikely to Significantly Expand Financial Risks"

Meeting on Financial Market Issues and Communication on the 22nd

Kim So-young, Vice Chairman of the Financial Services Commission, is giving a briefing on "Improvement Measures for Banking Sector Management, Business Practices, and Systems" on the 3rd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Yoon Dong-joo doso7@

On the 22nd, the Financial Services Commission assessed that the instability in the Chinese real estate market is unlikely to expand into a risk affecting the entire Chinese financial system. However, considering that the real estate sector accounts for 25% of China's gross domestic product (GDP), it pointed out that a delayed recovery in China's real estate market could become a source of instability across the Chinese economy.

On the same day, the Financial Services Commission held a financial market issue review and communication meeting chaired by Vice Chairman Kim So-young, with participants including the Financial Supervisory Service, the Bank of Korea, the International Finance Center, and private market experts. At this meeting, they examined external factors such as the Chinese real estate market and recent exchange rate increases, checked the foreign currency soundness of financial companies, and discussed response measures.

The Financial Services Commission stated, "Considering the Chinese government's response capabilities, the recent instability in the Chinese real estate market triggered by interest payment defaults from Country Garden, Sino-Ocean, and others is unlikely to expand into a risk affecting the entire Chinese financial system."

It also evaluated, "Given that domestic financial companies' exposure to Chinese real estate developers is about 400 billion KRW, the direct impact of the Chinese real estate market instability on domestic financial companies will be minimal." By sector, securities firms have exposure of 220 billion KRW, insurance companies 140 billion KRW, all related to holdings of securities. Even including indirect exposure such as real estate trusts, the total was found to be less than 1 trillion KRW.

As risks in the Chinese real estate market have become prominent, domestic stock and foreign exchange markets were somewhat affected last week. However, market volatility has somewhat eased this week. It is expected that the impact on the domestic financial market will vary depending on the development of the situation and the level of response from the Chinese government to resolve the issues.

The Financial Services Commission said, "Despite the recent rise in exchange rates, financial companies' foreign currency funding conditions and foreign exchange soundness remain in good condition," adding, "Even under stress scenarios assuming intensified foreign exchange market volatility, most financial companies are expected to maintain sound cash flows." In July, the foreign currency Liquidity Coverage Ratio (LCR) of domestic banks was 146.2%, well above the regulatory ratio of 80%.

At the meeting, participants agreed that "the short-term impact of Chinese risk factors will be limited, but if the Chinese real estate downturn prolongs and the growth of the Chinese economy weakens further, it could affect our real economy and financial markets through various channels in the medium to long term."

Vice Chairman Kim evaluated, "The recent volatility in the domestic financial market has occurred due to external factors such as concerns over prolonged U.S. monetary tightening and the possibility of a slowdown in the Chinese economy," and added, "Since the stable fundamentals of our economy and financial markets are firmly maintained, there is no need for excessive anxiety."

This content was produced with the assistance of AI translation services.