A clerk counts money for a client at an Agricultural Bank of China branch in Hainan province. [Photo/IC]

Divergent property demand, accumulated bad loans pose some of greatest difficulties

Fending off financial risks "in some key sectors" will receive more attention while ensuring economic growth next year, said a statement released after the three-day Central Economic Work Conference, which ended on Friday.

The government will step up efforts to prevent asset bubbles and improve regulation, the statement said.

Next year's key challenges include risks in the property sector that tend to grow as year-end approaches, and old issues that have yet to be resolved, such as banks' growing number of bad loans amid credit expansion, said Xie Yaxuan, chief economist at China Merchants Securities.

"The good thing is that the government has realized the potential risks in the property sector and has taken steps to stabilize market expectations, "said Xie, referring to the State Council's plan, issued in November, dealing with the renewal of expiring leases on residential land.

Song Yu, chief China economist at Morgan Stanley, said that such policies would help limit speculative behavior to some extent when residents found that their property assets would be protected after the leases end in 70 years.

Yan Yuejin, a senior researcher at E-house China R&D Institute, said the prudent and neutral monetary policy prescribed in the statement would help curb speculative investment.

Yan expected the central government would increase the regulation of money flowing into the property sector next year.

"There might be diverse credit policies corresponding to the different demand for housing purchases in different tiers of cities," Yan added.

As for resolving the accumulation of bad loans, Xie said it has to do with how the nation progresses next year with its economic transformation while implementing five key tasks, in particular cutting overcapacity, where a large proportion of bad loans have accumulated.

In Moody's 2017 outlook for banks in the Asia-Pacific, released this week, Chinese banks continue to face credit challenges, with a difficult operating environment.

Beijing has gradually placed more emphasis on problems and possible risks in the financial sector this year.