Housing price adjustments and restructuring of demand are good for China's financial sector but regulators expect to see a smooth transition rather than drastic adjustments that could have a huge economic impact, one of China's top financial regulators said on Wednesday.

"Nowadays, housing loans account for a large part of total loans at large commercial banks. We have repeatedly reminded banks to pay attention to risks, as many people borrow to buy homes for investment or speculation. If housing prices decline (unreasonably or irrationally) or some other problems emerge, a huge financial crisis will hit markets," said Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), at a news conference held by the State Council Information Office.

Despite slump in housing prices last year, homes, especially rental housing, and home decorations are still needed. Therefore, it is very meaningful to provide financial services in this regard, Guo said.

"No matter how much housing prices fall, it will still be difficult to meet housing demand of the working class, especially migrant workers who become new urban residents. In the future, we need to solve the problem by developing rental housing," said Tian Guoli, chairman of China Construction Bank Corp, a large State-owned commercial lender.

"If we keep designing rental housing-related financial products, many residents will get used to renting a home gradually," Tian said.

China Construction Bank developed a rental housing platform connecting landlords with tenants, which now covers more than 300 cities across the country. Over 38 million people have registered on the platform and conducted transactions so far, he said.

The CBIRC and the People's Bank of China, the central bank, will soon release a document guiding banks and insurers to offer financial services to new urban residents - that is to say, people who live in cities but have not yet obtained an urban hukou, a system of household registration in China, or those who have got an urban hukou for less than three years. China has more than 300 million new urban residents with demand for housing, jobs, child education and eldercare, Guo said.

He also stressed financial risks in priority areas remained under control last year.

From 2017 to 2021, China dismantled 25 trillion yuan ($3.96 trillion) worth of shadow banking activities and disposed of about 12 trillion yuan of nonperforming assets.

The situation of local governments' hidden debt has improved, and regulators have dealt with a group of high-risk companies and financial institutions that violated laws and regulations, he said.

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