BEIJING, Aug 6, (Agencies): Chinese regulators have called for stress tests on loans to a range of industries, including cement and steel, whose fortunes are closely tied to property markets on the brink of a correction, official media reported on Friday.
The tests, part of a broader investigation into banks’ ability to withstand falls in housing prices, point to the government’s determination to hold tightening policies in place until the property sector cools off.
The tests will probe the impact of a 60 percent plunge in housing prices, but analysts warned against reading too much into the extreme scenario, saying the market was likely to weaken but not collapse in such a spectacular fashion.
“The banking system has made quite a lot of loans to industries upstream and downstream from the real estate market and their risks are intimately connected to the real estate market,” the Shanghai Securities News said.

“Therefore, regulatory agencies have demanded that corresponding stress tests should also be conducted for industries such as steel, cement and building materials.”
China stepped up a tightening campaign earlier this year to squeeze any bubbles out of its red-hot property market, but while transactions have fallen, prices have barely dipped.
The China Banking Regulatory Commission (CBRC) declined to comment directly on reports of the ultra-stringent bank stress tests.
But in a statement on its website late on Thursday, it said that stress tests differed from bank to bank and formed part of continual efforts at risk management.
Hypothetical scenarios examined in stress tests did not reflect regulators’ forecasts for the property sector and nor did they herald any change in policy, the CBRC added.
“The tests show the government is not happy with the current prices. Prices haven’t been falling deeply enough,” said Cao Xute, a property analyst with Sinolink Securities in Beijing.
“If prices don’t fall in the next couple of months, the government could tighten further, through monetary and tax measures,” he said.

Industry insiders said that would not be necessary.
“Price growth in key cities has declined and property sales have plummeted,” Zhu Zhongyi, vice-chairman of the China Real Estate Association, a top industry think tank, was quoted as saying in the China Daily.
“So there is little possibility that the government will launch more tightening policies for the real estate sector before the end of the year,” Zhu added.
Shares of developers listed on the Shanghai Stock Exchange fell about 3 percent over two sessions after the stress tests were reported, before paring some of those losses at the close of trading on Friday. Shares of cement producers and steel makers climbed in line with the broader market’s 1.4 percent gain.
The property sector is a pillar of China’s economy, accounting for about a quarter of all capital spending, so a collapse in housing prices could reverberate widely.
Concerns about a housing bubble have centred on top-tier markets where price rises have been most extreme.
Banks in seven cities, including Beijing, Shanghai and Shenzhen, have been asked to examine the impact of a fall in property values of up to 60 percent, the official China Securities Journal reported.
Banks in the seven cities must submit the stress test results to their provincial regulator before Aug 13, it added.

There would be no “one size fits all” method and banks would decide for themselves how to conduct the tests based on the conditions of their local real estate market, the Shanghai Securities News said.
The CBRC has also instructed banks to stop extending mortgages to people buying their third homes in at least four booming cities — Beijing, Shanghai, Shenzhen and Hangzhou.
Stock prices of Chinese banks and real estate companies fell this week following reports lenders tested the impact of a possible drop of up to 60 percent in real estate prices.
Banks were told in May to test the impact of possible declines of up to 30 percent in prices, the China Banking Regulatory Commission said.
“Testing all types of circumstances does not represent the CBRC’s judgment about a tendency in the real estate market and does not represent a possible change in policy toward real estate credit,” the agency said in a written statement.
It did not respond directly to reporters’ questions about whether it had ordered new tests based on possible real estate price declines of up to 60 percent.