Weak property developers face credit crunch

BEIJING-- China's weakest real estate developers may face a credit crunch this year if the central government props up efforts to rein in "shadow banking" activities, Standard & Poor's said in a report on Thursday.

Non-banking channels such as trust financing have become major sources of funding for developers as the Chinese banking regulator imposes strict rules on credit issuance to property-related industries.

"Differences between the costs and the availability of funding are likely to continue to widen between large and small developers," said Standard & Poor's credit analyst Fu Bei. "Weaker developers may become targets of mergers and acquisitions to obtain liquidity support."

Meanwhile, the rating agency believes the largest developers have sufficient fundamentals to absorb a potential credit squeeze, especially after strong sales in the first half of this year increased liquidity buffers.

"Major players appear to have sufficiently healthy liquidity for the next six to 12 months, at least. For some developers, strong sales have refilled their war chests for land acquisitions and expansion," Fu said.