Chinese Lenders Support Improving Credit in Top US Markets

Following the Chinese Politburo’s decision to tighten the central bank’s monetary policy bias, the People’s Bank of China today raised the reserve requirement on the nation’s lenders. This is the third increase in just one month, reflecting policymakers’ concerns about the extent of overheating in the Chinese economy and the potential for rising inflationary pressures. Aside from China’s large trade surplus, which has prompted calls for a change in the global currency regime, the nation’s burgeoning property markets have also contributed to concerns of asset price bubbles in major metropolitan areas. In response, the Chinese government has worked to limit transaction activity and the availability of credit in support of real estate activities. Increasingly constrained in their domestic lending activities, China’s largest lenders have turned their attention westward, emerging as an increasingly visible source of credit in the United States.

The International and Commercial Bank of China’s (ICBC) June announcement that it would dispatch loans of $100 million suggests that Chinese lenders are opting for a surprisingly visible role in US commercial real estate credit markets. The high profile of large balance lending on major market assets invites the potential for unwelcome scrutiny and, in the worst case, a xenophobic response in our public discourse. Balance that against a credit market that needs a diversity of lending sources. While they are extremely well capitalized lenders, ICBC, along with Bank of China (BoC) and Export-Import Bank of China, are also operating in a credit environment that is favorable to their lending model, where conservative underwriting prevails and many historically dominant lenders are still in the early stages of their return to commercial real estate. Chinese banks are underwriting conservatively, and pursuing core properties with quality tenants, but they have also offered individual mortgages that others are currently unable – or unwilling – to extend.