China’s Fears of Credit Crunch Ease

Recent fears of an
intensifying credit crunch in China
have eased as short-term interest rates have dipped and the People’s Bank of China (PBOC) said there were sufficient funds in the market, although banks needed to improve their cash management and control their lending.

   

The PBOC has recently been seen to bring about a tightening of cash in money markets as it tries to rein in excessive credit growth, especially in the lightly-regulated ‘shadow banking’ sector. The policy has seen interest rates jump to 25% or higher for some deals late last week.

“At present, the overall liquidity in China’s banking system is at a reasonable level, but due to many changing factors in the financial markets and also because of the mid-year point, the requirements for commercial banks in liquidity management have become higher,” a statement from the PBOC, dated 17 June but just published on its website, read.

“Commercial banks must pay close attention to the liquidity situation in the market and must strengthen their analysis and forecasts of factors affecting liquidity.

“Financial institutions, especially large commercial banks, must at the same time as strengthening themselves, play an active role in using their advantages to support the central bank in stabilising the market,” it added.

The PBOC statement followed a commentary by the state-run Xinhua News Agency that dismissed claims that China is suffering from a cash shortage and that money isn’t showing up in the right places. Banks, stock markets and small businesses are in need of funds, while investment in wealth-management products and shadow banking show money supply is plentiful, Xinhua said.

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