China's banking regulator has ordered trust companies to assess risks in their property-related loans in a fresh move that may further tighten capital to real-estate developers, according to Chinese media reports on Friday.

The China Banking Regulatory Commission ordered trust companies to check whether property developers and their controlling shareholders qualify for the trust products, according to a report from the China Securities Journal, citing unnamed sources.

The regulator also asked trust companies to pay close attention to risks in their property-related products and to ensure that the funds are used properly, the report said.

Chinese developers have been using property-related trust products to raise funds for new projects to circumvent strict credit restrictions on banks.

The latest government measures may further squeeze the cash flow of developers who have strong capital demand, analysts said.

Earlier media reports said that China's big four State-owned banks had stopped issuing property loans at the end of October and won't issue any new loans to property developers for the remainder of 2010.

Although the banks have denied the report, they are facing increasingly strict scrutiny of their credit expansion and are being asked to keep tight control over their property lending.

The banking regulator in July asked trust companies to run stress tests to see if they can withstand a downturn in the property market. It also ordered the trust companies to halt the launch of wealth-management products via banks on concerns about risks in expanding credit to property and infrastructure projects.

In the first half of 2010, trust firms sold property-related investment products totaling 67.7 billion yuan ($10 billion), compared with 40 billion yuan for the whole of 2009.

But some analysts said that government measures to cool the real estate market may be counterproductive as the measures would limit housing supply which may eventually push prices even higher.

Policymakers have launched a series of measures to cool the country's property market since April, including a nationwide suspension of lending for third, and subsequent, home purchases.

By Li Xiang (China Daily)

(China Daily 11/20/2010 page9)