China says banks must prevent asset price bubbles

BEIJING: Chinese banks need to guard against asset price bubbles and ensure investors are not taking out bank loans to fund equity investments, the bank regulator said yesterday.
Many economists have warned that a sudden bursting of price bubble in the property sector is the biggest risk facing the world’s second-largest economy in the medium to long term.

“We must strictly control asset price bubbles and take pre-emptive steps,” Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a speech posted on the agency’s website: www.cbrc.gov.cn.

“We must ban bank credit from entering the stock market and ban banks from providing guarantees for corporate bond issuance,” Liu said.

Chinese regulators have long prohibited the country’s commercial banks from making loans for stock speculation.

The Chinese government has unveiled a slew of measures to cool down the property sector, with a crucial move in mid-July to expand its strict home purchase limits to smaller cities.
Banks must restrict lending to industries considered as energy-wasters or with overcapacity, but they must ensure that lending growth to the farm sector and small companies not fall below the average loan expansion, Liu said.

The regulator will also keep a tight grip on the establishment of non-banking subsidiaries by commercial banks, ordering banks to exit from sectors in which their units fail to meet performance targets, Lu said.