BEIJING: China has policy space to manage systemic risk exacerbated by liquidity stress among real estate developers, and regulations on their financing activities will slow down housing price growth amid deleveraging efforts, according to a national financial think tank.

       The National Institution for Finance and Development (NIFD), an institution under the Chinese Academy of Social Sciences, published an annual report on China’s housing sector financing. It predicted that home prices in China will continue to rise in 2021, but at a moderate pace, while default risks among developers will go up.

       Li Yang, NIFD chairman, said that Chinese policymakers still have tools available like injecting liquidity to curb default risks in the property market and prevent risk spreading to the financial sector.

       The central government has confirmed its policy stance in the 14th Five-Year Plan (2021-25) of supporting a balanced development of the real economy, financial and real estate sectors, which indicates the massive role of the property market in driving the world’s second-largest economy, Li said.

       As an industry, real estate has become as important as the financial services in China, and it contributed 7.5% of gross domestic product (GDP) in the first half, compared with 8.6% by the financial industry, the report said.

       “Real estate, finance and the macroeconomy are closely related,” said Li, and the economic cycles of major countries are related to the development of the property sector.

       Most major economic crises worldwide have been fuelled by real estate financing risk. “We need to always be vigilant about the real estate market,” Li added.

       The report found that housing price instability reappeared in 2020 affected by the Covid-19 pandemic. One of the key reasons was the spillover effect of aggressive monetary stimulus in other major economies to hedge against economic slowdown risks. — China Daily/ANN