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23-06-2013, 11:03 PM
http://www.afr.com/p/business/companies/...wYMc6mdv1I
Increased lending in China vexes Fitch
PUBLISHED: 0 HOUR 44 MINUTES AGO | UPDATE: 0 HOUR 23 MINUTES AGO
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Fitch Ratings’ Charlene Chu has a warning for China ... ‘It’s possible that we’ve hit some kind of saturation point with credit.’ Photo: Dom Lorrimer
VESNA POLJAK
One of the world’s best known Chinese bank analysts has warned increased lending may blunt the impact of future stimulus measures after China narrowly avoided a mini credit crunch last week amid a downgrade of its growth expectations.
On Thursday the People’s Bank of China rattled investors already ¬concerned about the withdrawal of stimulus measures in the US after briefly staying on the sidelines as short-term interest rates spiked to their highest level since March 2003.
China’s seven-day repurchase rate rose above 10 per cent on Thursday, nearly triple its level of two weeks ago, putting pressure on over-extended ¬lenders.
Fitch Ratings analyst Charlene Chu has warned that because the use of credit has swelled, its application could be less stimulatory than in the past. This could present a major challenge to Chinese policymakers as the pace of growth slows.
“Now we’re at a point where the numbers are very large – credit to GDP [gross domestic product] is 200 per cent and the numerator is still growing twice as fast as the denominator – and growth is consistently disappointing on the downside,” she told The Australian Financial Review during a visit to Sydney last week.
“It’s possible that we’ve hit some kind of saturation point with credit, and using it as a lever to stimulate the economy may not be as effective as in the past.”
Chinese lending has surged, surpassing even its own GDP in value, as debt underpins all facets of the economy’s rapid advance.
Ms Chu, who is based in Beijing, has forged a reputation as one of the most fearless analysts with an eye on China’s poorly understood banking system, and her research has earned her a huge -following around the world.
NO BANKING CRISIS
However, she is often misinterpreted because of her critical analysis, she said, and she does not, for example, foresee a banking crisis because the government could leverage its influence to prevent one from escalating.
The PBOC is understood on Friday to have injected around 40 billion yuan ($7 billion) into a number of banks, although this was not confirmed.
The People’s Bank of China ¬intervened at the eleventh hour to rescue the Chinese money market from a mini credit crunch with a liquidity injection on Friday that restored interest rates to more tolerable levels.
The PBOC’s silence on the issue and then its last-minute action has been ¬perceived as a lesson for Chinese lenders, frightening them into improving their liquidity management by briefly sending the market into panic mode.
As Chinese banks use a lot of short-dated funding they are especially ¬vulnerable to shocks.
Ms Chu believes it is difficult for anyone other than insiders to properly understand the PBOC’s current thinking and it may be that dual policy objectives are at work.
“In the past, you could always rely on the PBOC to intervene to support growth and prevent financial sector instability, but now there seems to be a competing policy goal where they want to slow some of the growth of shadow finance and potentially even flush out some from the system,” she said.
“People don’t know how these goals balance against each other, how ¬important this new objective is, and whether the PBOC will revert to past behaviour at some point. Liquidity was quite tight to begin with, and to be doing this with so little communication to the market is adding a lot of nervousness.”
CREDIT BOOM DID NOT END IN 2009
Ms Chu has been sceptical about the Chinese banking system even during the boom times when the market was ¬overwhelmingly positive on China.
“Even before the global crisis we knew there were issues about asset ¬quality data in China, so we were always more conservative than other analysts,” she said.
“Then in 2009, the amount of credit that was being extended just defied logic. Whenever we’ve seen that magnitude of credit extension elsewhere, there’s always a fair amount of bad debt that -follows.The problem is that the credit boom didn’t end in 2009. It went on into 2010, 2011, 2012, and still hasn’t really been reined in.”
ANZ economist Hao Zhou said last week that the PBOC’s reluctance to inject liquidity into money markets was part of “a crackdown on shadow banking ¬activities”. At the same time, there is some concern it may restrict companies’ access to funds at a time when economic activity is weak.
The HSBC’s closely watched as “flash” purchasing managers index, an early indicator of activity in the manufacturing sector, fell to a nine-month low of 48.3 in June.
Increased lending in China vexes Fitch
PUBLISHED: 0 HOUR 44 MINUTES AGO | UPDATE: 0 HOUR 23 MINUTES AGO
SHARE LINKS:email
• inShare
•
•
•
• submit
print-font+font
Reprints & permissions
Fitch Ratings’ Charlene Chu has a warning for China ... ‘It’s possible that we’ve hit some kind of saturation point with credit.’ Photo: Dom Lorrimer
VESNA POLJAK
One of the world’s best known Chinese bank analysts has warned increased lending may blunt the impact of future stimulus measures after China narrowly avoided a mini credit crunch last week amid a downgrade of its growth expectations.
On Thursday the People’s Bank of China rattled investors already ¬concerned about the withdrawal of stimulus measures in the US after briefly staying on the sidelines as short-term interest rates spiked to their highest level since March 2003.
China’s seven-day repurchase rate rose above 10 per cent on Thursday, nearly triple its level of two weeks ago, putting pressure on over-extended ¬lenders.
Fitch Ratings analyst Charlene Chu has warned that because the use of credit has swelled, its application could be less stimulatory than in the past. This could present a major challenge to Chinese policymakers as the pace of growth slows.
“Now we’re at a point where the numbers are very large – credit to GDP [gross domestic product] is 200 per cent and the numerator is still growing twice as fast as the denominator – and growth is consistently disappointing on the downside,” she told The Australian Financial Review during a visit to Sydney last week.
“It’s possible that we’ve hit some kind of saturation point with credit, and using it as a lever to stimulate the economy may not be as effective as in the past.”
Chinese lending has surged, surpassing even its own GDP in value, as debt underpins all facets of the economy’s rapid advance.
Ms Chu, who is based in Beijing, has forged a reputation as one of the most fearless analysts with an eye on China’s poorly understood banking system, and her research has earned her a huge -following around the world.
NO BANKING CRISIS
However, she is often misinterpreted because of her critical analysis, she said, and she does not, for example, foresee a banking crisis because the government could leverage its influence to prevent one from escalating.
The PBOC is understood on Friday to have injected around 40 billion yuan ($7 billion) into a number of banks, although this was not confirmed.
The People’s Bank of China ¬intervened at the eleventh hour to rescue the Chinese money market from a mini credit crunch with a liquidity injection on Friday that restored interest rates to more tolerable levels.
The PBOC’s silence on the issue and then its last-minute action has been ¬perceived as a lesson for Chinese lenders, frightening them into improving their liquidity management by briefly sending the market into panic mode.
As Chinese banks use a lot of short-dated funding they are especially ¬vulnerable to shocks.
Ms Chu believes it is difficult for anyone other than insiders to properly understand the PBOC’s current thinking and it may be that dual policy objectives are at work.
“In the past, you could always rely on the PBOC to intervene to support growth and prevent financial sector instability, but now there seems to be a competing policy goal where they want to slow some of the growth of shadow finance and potentially even flush out some from the system,” she said.
“People don’t know how these goals balance against each other, how ¬important this new objective is, and whether the PBOC will revert to past behaviour at some point. Liquidity was quite tight to begin with, and to be doing this with so little communication to the market is adding a lot of nervousness.”
CREDIT BOOM DID NOT END IN 2009
Ms Chu has been sceptical about the Chinese banking system even during the boom times when the market was ¬overwhelmingly positive on China.
“Even before the global crisis we knew there were issues about asset ¬quality data in China, so we were always more conservative than other analysts,” she said.
“Then in 2009, the amount of credit that was being extended just defied logic. Whenever we’ve seen that magnitude of credit extension elsewhere, there’s always a fair amount of bad debt that -follows.The problem is that the credit boom didn’t end in 2009. It went on into 2010, 2011, 2012, and still hasn’t really been reined in.”
ANZ economist Hao Zhou said last week that the PBOC’s reluctance to inject liquidity into money markets was part of “a crackdown on shadow banking ¬activities”. At the same time, there is some concern it may restrict companies’ access to funds at a time when economic activity is weak.
The HSBC’s closely watched as “flash” purchasing managers index, an early indicator of activity in the manufacturing sector, fell to a nine-month low of 48.3 in June.