Central bank governor Dai Xialong has made expanding housing loans a priority in 2000 and the central bank plans to allow the Pilot launch of mortgage-backed securities.

A top official of the Ministry of Construction has called for the establishment of specialised home mortgage-lending banks.

"We'll have healthy growth this year, especially in the individual home market, because the government has been encouraging private home ownership," said Zhao Xiaoying, an official of the China Construction Bank, the nation's biggest mortgage lender.

The bank's individual housing loans hit 4.17 billion yuan ($504 million) last year, she said. China's housing loans to individuals exceeded 6.0 billion yuan in 1999, double the 1998 levels, state media have said.

Beijing began to push home mortgage lending in 1998 in line with reforms to end state allocation of housing and turn the residential property sector into an engine of economic growth. The government hopes that encouraging home ownership will spur the flagging domestic economy and ease the burden on ailing state firms, which previously provided housing at little or no cost to workers.

"This is part of China's aim to absorb the huge number of available flats and relieve state enterprises from the social burden of providing homes for their employees," said Joe Lo, senior economist at Citibank in Hong Kong.Mortgage lending is also less risky than commercial loans, which meets China's goal of reducing the bad debts of its banking sector, bankers said.

But the fledgling business has been hurt by high housing prices, reluctance of potential buyers to spend and strict controls on interest rates which prevent competition among banks, they said.

"Now the problem in China is weak consumer demand for goods and housing," said Chi Lo, senior Asia economist at HSBC in Hong Kong. Last year, China lowered the mortgage downpayment to 20 percent of the purchase price from 30 percent, and extended the repayment period to 30 years from 20 years in a bid to attract more home buyers, according to state media. The business could be helped by interest rate liberalisation this year, which will give banks more latitude to set their own rates to compete for mortgage business, bankers said.

Mortgage lending now takes the central bank's 6.21 percent interest rate for loans of more than five years. The central bank has also announced it would allow mortgage-backed securities, though analysts said it will take years for China to develop the market.