BEIJING, Dec 26: China’s financial system is facing increasing risks due to soaring bank loans, with lending to the property sector and local governments a particular concern, the finance ministry warned on Wednesday.

Bank lending has been rising “at a high speed” in recent years and the quality is yet to be tested, Li Yong, vice finance minister, was quoted in a statement as saying.

“There are rather high potential risks, particularly in (loans extended to) the real-estate sector and its related industries and in the poorly designed maturity of lending granted to local government financing vehicles,” he said, without elaborating. He made the remarks at a national financial work conference earlier this month, according to the statement.

Chinese banks extended 7.75 trillion yuan ($1.2tr) in new loans in the first 11 months of the year, 919.1billion yuan more than the same period last year, official data showed.

Lending to the property sector totalled 982.1bn yuan in the first three quarters of the year, 10.2bn yuan less than the same period in 2011, according to the latest central bank quarterly report.

China has for the past two years sought to tighten policies on the property sector to rein in rising home prices. Measures included limits on second and third home purchases, higher minimum down payments, and annual taxes in some cities on multiple and non-locally-owned homes. These dampened speculation and strained developers’ cash flow.

The National Audit Office last year put the debt held by local governments at 10.7tr yuan at the end of 2010, or about 27 per cent of China’s gross domestic product that year.

Li also said China’s economic growth was set to slow over the long term due to sluggish foreign demand, insufficient domestic consumption, rising labour costs and increasing resource and environment constraints.—AFP