Sunday, November 18, 2007

China Freezes Lending to Curb Investing Frenzy

What a difference.... In other parts of the world the credit market is frozen by the market forces and the central banks are trying everything to keep the credit flowing. It remains to be seen how effective this Chinese effort will be. So far they didn´t get really serious and it seems they are paying the price for taking only babysteps during the past 24 month to dampen the excess....

Was für ein Unterschied....In anderen Teilen der Welt ist der Kreditmarkt durch das Marktgeschenen erheblich frostiger geworden und die Notenbanken probieren alles noch so unvernünftige um diesen Zustand zu "verbessern". Es bleibt allerdings abzuwarten wie effektiv dieser weitere Versuch der Chinesen sein wird. Bisher zumindest haben Sie nicht ernsthaft versucht grundlegendes zu ändern und es recht sich langsam aber sicher das in den letzten Jahren nur Alibischritte unternommen worden sind um das explosive Wachstum in langfristig gesunde Bahnen zu lenken.
In late 2005 and 2006, regulatory officials backed up rate increases by jawboning bankers to slow lending in the fourth quarter, but bankers say the end result was a rebound in lending in the first quarter of the
following year.

WSJ China Freezes Lending to Curb Investing Frenzy
Chinese authorities are slamming the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy.

In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals.

A China Banking Regulatory Commission official here confirmed that local and Chinese subsidiaries of foreign banks have been asked to ensure that loans at the end of the year don't exceed the total outstanding on Oct. 31. The official described the request as "guidance aimed at supporting the macro-control measures being implemented."

Over the past few years, Chinese authorities have repeatedly sought to rein in investment in sectors such as property development, where they deemed it was becoming excessive. But even in China a blanket edict to halt lending growth is unusual.

Curbing lending by raising interest rates, as China already has done four times this year, would be more in keeping with Beijing's increasingly market-oriented approach to business. But the lending freeze shows how the slowing U.S. economy may be complicating Chinese policy making. Lower interest rates in the U.S. give Beijing less room to push up rates without creating a ripple effect.

Bankers say they will honor the lending edict, partly because it comes with threats of financial penalties for noncompliance. "Which commercial bank would dare not obey this?" says Liu Haibin, chairman of the supervisory committee of Shanghai Pudong Development Bank Co.

A Bank of China Ltd. official in Suzhou said over the weekend his branch is pushing big corporate loans into next year. An official of the same bank in central Henan province said the new measure in effect extends existing lending controls on property developers and power producers across the board to all banking clients. The measure could pose a particular challenge for the Chinese units of foreign banks, which have less flexibility than their larger local peers.

It has been three years since Premier Wen Jiabao pledged to deal with "severe" problems associated with rampant credit growth. But despite repeated rate increases, economic data still point to risks that haphazard investment could make the Chinese economy spin out of control and possibly lead to hyperinflation or a spate of bad loans.

> Here is more on this from Michael Pettis US slowdown and Chinese investment

> Hier mehr zu diesem Thema von Michael Pettis US slowdown and Chinese investment

According to the article the PBoC estimates that every 1% drop in US GDP growth would be accompanied by a 6% drop in Chinese export growth

Just last week, the government said fixed-asset investment in factories and property expanded nearly 27% in the first 10 months of 2007 from a year earlier, one of the highest rates in recent years.

Gross-domestic-product growth, at 11.5% in the first nine months of 2007, is on pace this year for its fastest rate since the blowout years of the early 1990s, when growth peaked at more than 14%. Soaring food prices and rising fuel charges are sowing concerns about consumer-price inflation -- which in October stood at a decade high of 6.5% -- and risking social discontent.

It isn't easy to predict whether a pause in bank lending so late in the year might dent China's economy. Several bankers said the fourth quarter is generally quiet for lending anyway, and that many banks have already met or even exceeded year-end lending targets. Meanwhile, a China Construction Bank Corp. official in Shanghai said he is for now rejecting loans for everyone but established clients.

The loan freeze may have a particularly disruptive effect on foreign banks with subsidiaries incorporated in China. Foreign bankers occupy just a corner of China's financial system, and they say they are eager to remain on good terms with regulators.

Foreign banks in the important Shanghai market -- including Britain's HSBC Holdings PLC and Standard Chartered PLC, New York-based Citigroup Inc. and Hong Kong's Bank of East Asia Ltd. -- controlled 6.2% of industry deposits at the end of September and more than 16% of loans outstanding, according to official figures.

Because foreign banks have fewer deposits than their more entrenched Chinese counterparts and regulators are already pushing them to keep outstanding loans at 75% of deposits, they have very little financial flexibility. Their earnings could also take a hit if they need to borrow in local money markets or sell loans to comply with the freeze.

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