China’s central bank confirmed on Friday that it had established a new financial stability committee to defuse the nation’s mounting debt risks, as a senior government adviser suggested that Beijing needed to inject 1 trillion yuan (US$139 billion) into the property sector to stabilise developers’ balance sheets.
China’s central bank announced in its midyear report on Friday that it had set up a new macroprudential and financial stability committee as part of an ongoing derisking effort. More robust action was needed to help developers liquidate their assets, Yin suggested.
“Given the large capital shortfall facing these companies, I suggest … setting up a dedicated state-backed agency to provide capital injections to property developers that meet certain criteria,” he wrote in the July issue of the Tsinghua Financial Review.
The Ministry of Finance should fund the injections by issuing special treasury bonds, with a proposed 1 trillion yuan “real estate stabilisation trust” set up to channel the funds to eligible developers, Yin said.
The funds should be channelled to some or all of the country’s 30 largest private property firms, with the government taking convertible preferred shares from the developers with a conversion period of five years or more, he added.