Beijing may be prepared to do whatever is required to quell the riots in Xinjiang province but, on a national scale, also whatever it takes to manufacture an 8 per cent economic growth rate. If that means hosing the economy with more credit than it knows what to do with, so be it. Coincidence or not, the Tiananmen uprising took place in a year when economic growth more than halved. However, Chinaâs increasingly fretful banking regulator worries that rampant credit growth âposes risksâ to the financial system. The warning comes after banks advanced Rmb5,840bn ($855bn) of new loans in the first five months, almost triple the amount a year earlier. As for Juneâs lending, at $220bn it was a blockbuster as banks pumped up their quarterly loan numbers, just as they did in March (to $280bn). An unknowable amount of this cash has ended up on the blackjack tables of Macao â or that other casino, the Shanghai Stock Exchange, where daily volumes are currently three times the five-year average. But even assuming that most has gone where intended, there are still many reasons to worry. Chinese banks seem ill equipped to handle asset growth like this. To win mandates on plum infrastructure projects such as public housing and transport, lenders have relaxed standards. Meanwhile, big corporates are awash in liquidity: some are simply putting loans back on deposit or lending on to lesser credits denied bank finance. In the first quarter, direct lending to small and medium-sized companies â the engine of any economy â accounted for less than 5 per cent of the total. China failed to complete a $4.1bn auction of one-year government bonds on Wednesday, suggesting that investors are positioning for higher inflation caused by the credit surge. For Beijing, that is a secondary concern. As strong growth figures should confirm next week, in the 60th year of the peopleâs republic, and in a month with the worst ethnic violence suffered since the cultural revolution, the priority remains maintaining growth. http://www.ft.com/cms/s/2/5a022164-6b96-11de-9320-00144feabdc0.html From Reuters: Chinese shorter-term bond and bill yields soared on Thursday after the central bank resumed one-year bill sales, that had been suspended for seven months, confirming to traders that monetary policy was being tightened. The central bank auctioned 50 billion yuan ($7.3 billion) of one-year bills in its regular open market operations at a yield of 1.5022 percent, above forecasts of around 1.40 percent and ranged between 1.30 and 1.50 percent. Hmmm. So why would China be looking to drain liquidity from the system? Well, the announcement on one-year bills sales was actually made on Wednesday but came shortly after this news hit the tape: Chinese banks made new loans totalling 1.53 trillion yuan in June, higher than the estimate of 1.2 trillion yuan given by state media and dwarfed Mayâs total of 664.5 billion yuan. For the first half of the year, banks extended 7.37 trillion yuan in new loans, well above the minimum target of 5 trillion yuan set by the government for the year. http://ftalphaville.ft.com/blog/2009/07/09/61171/quantitative-tightening/
Where do you guys find reports of riots in XinJiang province of China ? Would like to see more versions/comments of the story.
This will be a homerun trade when this bubble collapses. It will make the US subprime crisis look like a peanut.
Hey guys, the logic of our (Chinese )government is like this : Why can't we lend to fellow citizens if we can lend to Americans ?
Lol. Yep. Stimulus money don't hit that fast, it's all bank loans and relaxed standards. But their economy is still in good shape, I would think. I mean we had 25 years of a bubble economy from the 1980s! It's not over.