Coronavirus: China’s bank loans intended to help small businesses are actually fanning Shenzhen’s property bubble

Beijing has promised help to small and medium-sized businesses amid the outbreak of Covid-19, with additional liquidity released into the banking system

But the loans are in some cases being obtained by dummy shell corporations and used illegally for real estate investments

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According to the official data, banks in Shenzhen granted 315.8 billion yuan (US$44.7 billion) worth of new yuan loans in the first quarter of 2020, an increase of 71.8 billion yuan from the same period last year. Photo: Edward Wong

Published: 1:00pm, 23 Apr 2020Updated: 4:23pm, 15 Mar 2021

Daniel Du’s souvenir company has for a long time existed in name only as it was too troublesome to dissolve. But earlier this year, the Shenzhen resident again found a use for it: to borrow cheap money from banks.

With a few phone calls and a bit of paperwork to navigate through a less rigorous application procedure, Du managed to obtain a loan valued at 70 per cent of his collateral, a commercial property, at an annualised interest rate of 4 per cent, which is below China’s one-year benchmark of 4.35 per cent.

In the past, Du may have only been able to obtain a loan valued at around 50 per cent of his collateral, but amid the coronavirus epidemic, banks can now go as high as 90 per cent. Du also received subsidies for six months of interest.

Du claimed that he would use the money to restart his businesses, which fits in with Beijing’s policy of helping small businesses to survive the affects of the coronavirus outbreak. But Du said that his real plan was to use the money to pay the mortgages on his three flats – a purpose that is not allowed.

It was impossible for me to get such a deal before [the coronavirus outbreak]

Daniel Du

“It was impossible for me to get such a deal before [the coronavirus outbreak],” Du said, who could be asked to immediately repay the entire loan if the bank discovered what the money was used for.

Du took advantage of Beijing’s desire to help the country’s struggling small businesses to further his personal gamble in Shenzhen’s red-hot property market, but he is not alone.

The speculative buying of property in the city has resulted in hefty prices, especially for flats in the wealthier districts. According to China’s National Bureau of Statistics, prices in Shenzhen rose 1.6 per cent in March from February, topping the country’s 70 major cities.

While the average income level in Shenzhen is still a fraction of neighbouring Hong Kong, the Chinese technology hub’s property prices are quickly narrowing the gap with its neighbour. The asking price for a 78 square metre (840 sq ft) two-bedroom flat in a wealthy district in Shenzhen is currently around 8 million yuan (US$1.1 million), while over the border, the average price for the same sized property on Hong Kong Island was HK$16.64 million (US$2.1 million) in February, according to the Rating and Valuation Department.