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Rise in Bank Loan may Spark Tightening of Credit


According to the Chinese Central Bank, in November, the new yuan loans grew more than expected. In November, Chinese banks extended 624.6 billion yuan of new yuan loans which is almost 24 percent higher than the 506.1 billion amount lent in October.

The amount topped both the 580 billion yuan median estimate by 41 analysts surveyed by Bloomberg and the 550 billion yuan median forecast in a poll of 11 economists by The Wall Street Journal. Cumulative financing came to 1.23 trillion yuan, up from the cumulative financing of 856.4 billion yuan in October.

According to the data released by central bank, on 11th November 2013, Shanghai Composite Index lost 1.5 percent shares. A China economist with Australia and New Zealand Banking Group Ltd, Zhou Hao believes that revitalization in the shadow banking would support the social financing.

Zhou Hao pointed to a rise in entrusted loans which is a type of off-balance-sheet lending in which lenders act as intermediaries as a proof of an increase in shadow banking. In November, new entrusted loans totaled upto 270.4 billion yuan, which had increased from 148.6 billion yuan in 2012 and the highest monthly amount since August.

At the end of 2012, the stock of debt surged to 200 percent of GDP, an increase from 129 percent in 2008, when the authorities stimulated the economy with a 4 trillion yuan investment package to battle the global financial crisis. According to analysts, the rapid increase in loan growth might trigger central bank officials to get tougher on restraining debt as bank officials meet in Beijing this week to map out policies for 2014.

According to a research note written by British bank Barclays Plc, the ‘prudent’ monetary policy stance will likely be kept, but tightening has already started. The bank added that, in 2014, the growth targets is expected to be maintained at 7.5 percent, as maintaining those targets would definitely help in stabilizing the market sentiment as the government shifts its focus from creating growth to promoting reforms.

The Ministry of Finance said the government's fiscal income grew 15.9 percent to 912.5 billion yuan, in the first 11 months of year 2013. The front-page commentary by China Securities Journal which is owned by Xinhua News Agency, said that the proactive fiscal policy should be phased out by China, as it jeopardizes local government debt and causes large deficits.

The fiscal revenue growth in 2012 had slowed down by 13 percent as compared to 32 percent in 2007, while analysts believe outstanding local government debt has risen to 15 to 20 trillion yuan. Barclay expects that a proactive fiscal policy stance is also likely to be retained.

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