In a company newsletter, Adam Roseman of ARC Investment Partners discussed property prices in China. China’s banking regulator recently stated that the country’s lenders are capable of handling a 50% fall in property prices. Chairman of the China Banking Regulatory Commission Liu Mingkang said the regulator had performed the stress tests mainly on domestic banks.
“The stress tests do not reflect the CBRC’s view about the property market’s direction, but the results should strengthen the confidence of all banks in implementing the property controls,” Liu said.
In the article, Roseman explained that “Mortgages and credit to property develppers account for about 20% of banks’ loan books in China, so stress tests that are confined to the direct impact of falling house prices have produced only mildly negative results in the past. But the property sector is a pillar of the Chinese economy and the indirect impact of a downturn on other industrial sectors and sentiment more broadly could be severe.”