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China’s central bank maintains loan prime rates

China’s central bank kept its key one-year and five-year loan prime rates unchanged for November on Monday.

The key rates remained at 3.45% and 4.2%, respectively, marking the third straight month that the People’s Bank of China has held the one-year rate after cutting it from 3.55% to 3.45% in August.

The five-year rate, meanwhile, has been held at 4.2% for five consecutive months, having been last lowered in June from 4.3%.

The central bank kept its medium-term policy rate steady last week, so analysts didn’t see any prospect for change, even though the October economic data was mixed, especially for the property market.

While Monday’s rate decision held the market’s attention, economists were more interested in the out-of-the-blue statement from the central bank on property and local government finance.

China’s central bank and financial regulators pledged on Friday to ensure financing support for the property sector and to work together to resolve local government debt risks.

Both the property slump and continuing unease about $US12.7 trillion in local government debt continue to weigh on the wider economy and prevent any lasting and convincing action to stabilise the property market.

Financial institutions will meet reasonable financing needs of property firms and refrain from withdrawing or cutting off loans to them, the securities regulator said on Friday, after a meeting held by the central bank and financial regulators.

Recent efforts to stabilise financing for the real estate sector via bank credit, bonds, and equity are gaining traction, the China Securities Regulatory Commission said, without providing any evidence.

China will promote stable credit expansion to support its economic growth, and financial institutions should work with local governments to resolve debt risks by extending, swapping, or rolling over debt, the regulator added.

The last point was the key message – debts in property and local government will be dealt with by rollovers, extensions, and asset swaps – in other words, with as little new state money as possible.

While that is the usual promise, the huge debts held by the property sector and local government mean both will be constrained in reaching any deals.

The bailout of broken developer Country Garden by insurer Ping An remains a test of the commitment by the government and regulators to restructuring deals involving little or no state aid.

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