China created a dedicated fund to support the heavily indebted sector, which has been lurching from one crisis to another. However, will this fund alone be enough to solve the problem?

Larry Hu, the chief China economist at Macquarie, said, “I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis because it alone would not solve all the problems … we need a real estate recovery.”

The central bank, the People’s Bank of China, will inject $12 billion into the new fund. This bailout amount will be used to bankroll the purchases of unfinished home projects, complete their construction, and then rent them to individuals as part of the government’s drive to boost rental housing. In addition to reviving stalled projects, the fund may be used to buy developers’ bonds, issue their loans or take equity stakes. 

Depending on the project’s efficiency, other banks will follow suit and expand the bailout to as much as $44 billion. 

This is one of the measures that the authorities scramble to gain back confidence in the property market and avert problems spilling into the broader economy.  

Last week, local government-backed groups in Zhengzhou, the capital of central Henan province, established a similar fund to support cash-strapped developers in the region.

Shares in China’s most prominent property developers rallied following reports. According to Financial Times, the Hang Seng Mainland Properties index, which tracks 10 of the country’s biggest Hong Kong-listed real estate companies, was up by as much as 5.4 percent in early trading. The Country Garden and Longfor Groups, rose 8.3 percent and 9 percent, respectively.

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