China's Largest Political Event 'Lianghui' Expected to Discuss Real Estate Solutions

by Kim HyeongMin

Published 03 Mar.2024 12:39(KST)

"Possibility of Removing Detonators Through Banks"

During the Lianghui (兩會, the National People's Congress and the Chinese People's Political Consultative Conference), China's largest annual political event, there is speculation that real estate issues will be discussed as a major agenda item and that efforts to resolve these problems, centered around banks, may be strengthened.

Chinese President Xi Jinping [Image source=Yonhap News]

According to Bloomberg Intelligence (BI), a research institution under Bloomberg, senior strategist Marvin Chen and others recently predicted in a report that responding to the sluggish real estate market, which shows little sign of recovery, and stabilizing housing market sentiment could be key agenda items. There is also talk that the development of guaranteed housing (low-cost housing for low-income residents) and Chengzhongcun (城中村, urban villages or underdeveloped urban areas), which Chinese authorities have emphasized, may be discussed.

Earlier, the People's Bank of China, the central bank, decided at the end of last year to supply funds amounting to 350 billion yuan (approximately 64.5 trillion KRW) through three institutions including the China Development Bank, and it is widely expected that these funds will be invested in these projects.

Francis Chan, a senior analyst at BI, forecasted in a separate report that the responsibility of large banks, including the Industrial and Commercial Bank of China (ICBC), will increase in the process of revitalizing the Chinese economy after the Lianghui. Banks are expected to play a key role in dismantling 'time bombs' such as real estate issues and Local Government Financing Vehicles (LGFVs), as well as achieving the recently emphasized 'new quality productive forces' (新質生産力) goals and the economic growth target of around 5% for this year.

Chinese authorities have already requested commercial banks to provide funding for projects included in the 'whitelist' to ensure ongoing construction can be completed. As of the 20th of last month, the whitelist included a total of 5,349 projects, among which 162 projects reportedly received loans totaling 29.43 billion yuan (approximately 5.4 trillion KRW).

In the past, local governments in China often raised off-the-books debt through special purpose entities called LGFVs to carry out construction projects, which were not reflected in official statistics. Banks' roles are now indispensable in resolving the LGFV problem, which has grown to an unmanageable level.