Advertisements
//
you're reading...
Finance & Economy

China will cut off credit to rebalance economy


A man rides an escalator near Shanghai Tower (R, under construction), Jin Mao Tower (C) and the Shanghai World Financial Center (L) at the Pudong financial district in Shanghai. Credit: Reuters/Carlos Barria

A man rides an escalator near Shanghai Tower (R, under construction), Jin Mao Tower (C) and the Shanghai World Financial Center (L) at the Pudong financial district in Shanghai. Credit: Reuters/Carlos Barria

China said on Friday it would cut off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economy’s dependence on extravagant investment funded by cheap debt.

In a statement from the State Council, or cabinet, Beijing laid out broad plans to ensure banks support the kind of economic rebalancing China’s new leadership wants as it looks to focus more on high-end manufacturing.

President Xi Jinping and Premier Li Keqiang have flagged for some time that the rapid growth of the past three decades needs to shift down a gear, and analysts said Friday’s announcement was a signal that they intended to press on with reforms despite evidence of a sharper-than-expected slowdown.

“The guideline shows China’s policymakers will focus more on economic restructuring to stabilise the economy rather than providing more liquidity to support economic growth,” said Li Huiyong, an economist at Shenyin Wanguo Securities in Shanghai.

The slowdown in the world’s second-largest economy has started to put pressure on some businesses.

On Friday, China Rongsheng Heavy Industries Group (1101.HK), China’s largest private shipbuilder, appealed for financial help from the government and big shareholders, after cutting its workforce and delaying payments to suppliers.

Analysts said the company could be the biggest casualty of a local shipbuilding industry suffering from overcapacity and shrinking orders amid a global shipping downturn. New ship orders for Chinese builders fell by about half last year.

The State Council said it would ensure credit kept flowing to businesses that it thought had competitive products, but it would work with banks to oversee a gradual winding down of other businesses.

“The government will adopt differentiated policies based on the varied situations in the industries plagued by overcapacity,” it said.

It did not mention any specific industries or companies and there was no suggestion it was referring to Rongsheng.

CASH CRUNCH

Friday’s announcement was the latest sign that China’s policymakers are determined to bring debt-fuelled expansion under control, after the central bank allowed a cash crunch last month that sent short-term lending rates to record highs.

Ma Tao, an analyst with CEBM Group, an institutional investment research firm in Shanghai, said sectors such as construction materials, steel and aluminium suffered from overcapacity, as well as high debt and financing costs.

“The recent credit crunch also served as a catalyst for their cash flow problems to emerge as liquidity has not been eased,” said Ma.

The State Council also said that, in future, so-called wealth management products issued by banks would have to be linked to specific projects, rather than being mixed together with banks’ other pools of credit.

Such a move would prevent some of the riskier lending practices in the shadow banking market that the central bank has been trying to address.

Explosive credit growth, particularly in the opaque shadow banking system, is seen by analysts as one of the biggest risks to China’s economy, along with a frothy property market and the run-up of debt by local governments.

Underlining the last of those risks, a senior official said on Friday that the government did not know precisely the extent of local governments’ debt, and warned that it could be more than previous estimates.

Estimates of local government debt range from Standard Chartered‘s 15 percent of the country’s GDP at end-2012 to Credit Suisse‘s 36 percent. Fitch put the figure at 25 percent when it downgraded China’s sovereign debt rating in April.

Vice Finance Minister Zhu Guangyao said China had not released official figures since a 2010 auditing report that put local government debt at 10.7 trillion yuan.

“Currently, nationwide surveys, I think this number will rise,” Zhu said, defending the debt as mostly geared toward fuelling infrastructure projects.

Source: Reuters – “China signals will cut off credit to rebalance economy”
 
Advertisements

About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Advertisements

China Daily Mail

China Daily Mail is not affiliated in any way with The China Daily or the government of the People's Republic of China.

Enter your email address to receive an email each time an article is published, or join our RSS feed. 100% FREE.

Want to write for China Daily Mail?

Read “Contributor Guidelines” above to join our team of 76 contributors. Write news or opinion about issues in China, or post photos and video. Promote your own site.

Recent Posts

China Daily Mail Stories Have Been Featured In:

Advertisements
%d bloggers like this: