SHANGHAI/BEIJING, June 26 (Reuters) - China Development Bank (CDB) has halted funding for new shantytown redevelopment projects, and has transferred approval authority from its local branches back to the policy bank’s headquarters, a source at the bank told Reuters late on Monday.
The source said new funding is being reined in due to concerns about risks associated with rising debt for local governments, the primary recipients of the loans used to fund shantytown redevelopment.
Existing projects are operating normally, said the source who spoke on condition of anonymity.
“Authority to approve shantytown redevelopment projects and sign contracts used to be at the branch level...But that has all gone back to headquarters now,” the source said.
In response to questions from Reuters, the bank said it continues to implement the policy.
“This year CDB has strictly implemented policies related to shantytown redevelopment. (CDB) works with local governments to implement shantytown redevelopment in compliance with laws and regulations,” CBD said in a statement to Reuters.
“At present all work is being carried out in an orderly manner.”
State-run newspaper Securities Times cited sources on Tuesday as saying that CDB was reviewing all its lending, not just shantytown development, as it looks to strengthen risk management.
China has ploughed hundreds of billions of dollars of policy loans into redevelopment of urban shanty towns, which analysts say has created a significant source of demand in the property market as residents are encouraged to use cash compensation to purchase a new home when their existing home is demolished.
The policy helped boost home sales and prices in smaller cities that had struggled for years with a glut of unsold homes.
Chinese Premier Li Keqiang said in his annual work report in March that China plans to revamp 5.8 million shantytown homes in 2018, after investing a total of 1.84 trillion yuan ($280.73 billion) to upgrade more than 6 million homes in the previous year.
CDB has provided 436.9 billion yuan worth of such loans from the beginning of the year to May, according to data from the bank.
“Overall, we think that CDB may tighten the approvals of new shantytown redevelopment projects,” analysts at Guotai Junan Securities said in a note on Tuesday.
“As a result, 2018 housing sales in lower tier cities are expected to be lower than our previous expectations”, the analysts said, although they expect demand for homes to stay strong.
An index of property stocks listed on the Shanghai Stock Exchange was down over 3 percent on Tuesday morning, significantly worse than a 1 percent decline for Shanghai stocks overall. ($1 = 6.5544 Chinese yuan renminbi) (Reporting by Li Zheng in SHANGHAI and Yawen Chen and Elias Glenn in BEIJING Editing by Shri Navaratnam)