By staff reporter Li Zengxin

From Caijing Online

Falling prices for real estate in China will not trigger financial instability, nor should the country stop pursuing financial innovation, according to Li Jiange, chairman of government investor China International Capital Corp. Ltd.

Li made the comments January 13 at the Caijing Annual Conference 2009 in Washington.

Li acknowledged that derivatives have had a negative image since the outbreak of the global financial crisis. But without derivatives “we will lose tools for price finding and risk management,” he said.

In China, Li said, the government has adequate measures to control real estate market bubbles.

Property prices rose 63 percent between 2004 and ’07 nationwide, and annual growth averaged 10 percent. But financial regulators and commercial banks tightened mortgage availability. In June 2006, for example, the down payment requirement was raised to 30 percent from 20 percent. And in October 2007, the threshold for a second-home down payment was raised to 40 percent.

Moreover, Li said, China has enjoyed a relatively conservative credit environment. For example, China does not offer subprime mortgages, and will not likely open a market for these products in the near-term, he said.

At the end of 2007, the nation’s balance of mortgage loans stood at US$ 379 billion, or 12 percent of its GDP, compared with US$ 10 trillion in the United States, equal to 76 percent of its GDP.

Meanwhile, mortgage loans represent only 11.6 percent of the total lending by China’s commercial banks, Li said. In America, the percentage is 56 percent.

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