China's financial regulators are encouraging mergers and acquisitions of projects by struggling property developers as a market solution to better manage risks, official sources said.

The People's Bank of China and the China Banking and Insurance Regulatory Commission jointly published a notice recently on offering financial services for acquisitions in settling risks of key real estate enterprise projects, according to China Securities Journal.

High-quality property enterprises are encouraged to merge and acquire projects of real estate enterprises suffering from market risks, sources close to the regulators were quoted as saying by China Securities Journal on Dec 20.

According to the report, when real estate companies faced bankruptcy in the past, they did not cause a major market impact. One useful measure to defuse the risk was M&A activity targeting certain property acquisitions.

"In case a particular property developer can no longer continue its business, other real estate companies can acquire it or purchase projects under it," a source close to the regulator was quoted as saying by China Securities Journal.

Currently, a few real estate developers are encountering bankruptcy risks, so it is extremely important to solve their problems during business exits. Project M&A is one of the most important means, which is also mentioned in the notice of the central bank and the CBIRC, said the report.

A CBIRC spokesperson said at a recent news conference that first-time homebuyers meeting mortgage demands, property project M&As and government-subsidized rental housing will be given preferential loans so as to promote the stable and healthy development of the real estate sector.

The notice made it clear that commercial banks and financial institutions should abide by existing laws and adhere to rules regarding controlling risk and maintaining commercial sustainability when conducting property developers' M&A loan business.

It also supported prime real estate enterprises to issue debt financing instruments to raise capital for their M&A activities.

The notice outlined requirements in terms of M&A financing advisory services, improving the efficiency of M&A services and risk management.

There is a request to establish a mechanism for reporting and advocacy, according to the notice.

Banking financing institutions should set up a reporting system on the M&As of key real estate enterprise projects. With such conditions, problems and suggestions of M&A financing services conducted would be reported to the central bank and the CBIRC on a monthly basis. Banking financing institutions should actively cooperate with information disclosure of M&A projects progress and financial support received, the notice added.