This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.nytimes.com/2013/06/22/business/global/chinas-bank-lending-crunch-eases.html
The article has changed 3 times. There is an RSS feed of changes available.
| Version 1 | Version 2 |
|---|---|
| China’s Credit Squeeze Relaxes as Interest Rates Drop | China’s Credit Squeeze Relaxes as Interest Rates Drop |
| (about 1 hour later) | |
| BEIJING — China’s credit squeeze eased Friday after lending resumed among banks and financial institutions that had been desperately seeking cash through the week in the interbank market. | BEIJING — China’s credit squeeze eased Friday after lending resumed among banks and financial institutions that had been desperately seeking cash through the week in the interbank market. |
| China’s central government made no official announcement on the situation, and it remained unclear whether policy makers had intervened, but short-term interest rates fell sharply Friday from the day before, when they had reached some of the highest levels in a decade. | China’s central government made no official announcement on the situation, and it remained unclear whether policy makers had intervened, but short-term interest rates fell sharply Friday from the day before, when they had reached some of the highest levels in a decade. |
| Still, rates for Chinese institutions seeking interbank financing on Friday were substantially higher than they had been a few weeks ago. | Still, rates for Chinese institutions seeking interbank financing on Friday were substantially higher than they had been a few weeks ago. |
| Financial experts said they expected the higher interest rates to persist for some time because the Chinese government appeared to have abandoned its longstanding policy of responding to any hint of an economic slowdown by expanding credit. Analysts say the government is holding back because it is determined to rein in excess credit expansion and avert a financial crisis that could result from years of poor lending practices and overinvestment. There are also hints that a huge shadow banking operation in China could be masking more serious financial risk-taking. | |
| “The government at the moment wants to signal, we’re working on reform; we’re not interested in short-term stimulus, like China did in the past,” said Louis Kuijs, the chief China economist at the Royal Bank of Scotland. | “The government at the moment wants to signal, we’re working on reform; we’re not interested in short-term stimulus, like China did in the past,” said Louis Kuijs, the chief China economist at the Royal Bank of Scotland. |
| The government’s reluctance to increase bank liquidity is troubling investors because of concerns that China’s economy is weakening much faster than expected. | The government’s reluctance to increase bank liquidity is troubling investors because of concerns that China’s economy is weakening much faster than expected. |
| Economists in China cut their growth forecasts sharply in the last week, though projections remain robust at 7 percent. Prices of Chinese shares plunged on the Shanghai and Shenzhen stock markets, ending one of the worst weeks in four years. | Economists in China cut their growth forecasts sharply in the last week, though projections remain robust at 7 percent. Prices of Chinese shares plunged on the Shanghai and Shenzhen stock markets, ending one of the worst weeks in four years. |
| Joe Zhang, a longtime banker and the author of “Inside China’s Shadow Banking: The Next Subprime Crisis?,” said the apparent decision by the central bank to discipline banks by allowing rates to rise this past week was necessary. | Joe Zhang, a longtime banker and the author of “Inside China’s Shadow Banking: The Next Subprime Crisis?,” said the apparent decision by the central bank to discipline banks by allowing rates to rise this past week was necessary. |
| “Effectively, they’re telling commercial banks to go and sort out their problems,” Mr. Zhang said by telephone on Friday. “The banks have lent out too much money. And what happens over time? You go from prime to subprime to silly loans. This is what happened with the U.S. subprime crisis. Banks start lending to bad projects. We’ve been too reckless.” | |
| Determined to shore up defenses in a financial system that now underlies the world’s second-largest economy after the United States, China’s top leaders are slowing the flow of the fuel that has helped foster many of the risks: credit from state-run banks. | Determined to shore up defenses in a financial system that now underlies the world’s second-largest economy after the United States, China’s top leaders are slowing the flow of the fuel that has helped foster many of the risks: credit from state-run banks. |
| For much of the last decade, when the economy has slowed, Beijing has pressed state-owned banks to lend more aggressively. | For much of the last decade, when the economy has slowed, Beijing has pressed state-owned banks to lend more aggressively. |
| But when interbank lending tightened this month — after aggressive lending early in the year — the central bank refrained from adding liquidity to the market, which would have kept short-term interest rates low. | But when interbank lending tightened this month — after aggressive lending early in the year — the central bank refrained from adding liquidity to the market, which would have kept short-term interest rates low. |
| As credit markets began to freeze up and mistrust among banks spread, rumors circulated of defaults. Late Thursday, the Bank of China, one of the country’s biggest lenders, was forced to issue a statement on its Web site denying local news reports that it had defaulted on interbank payments. | As credit markets began to freeze up and mistrust among banks spread, rumors circulated of defaults. Late Thursday, the Bank of China, one of the country’s biggest lenders, was forced to issue a statement on its Web site denying local news reports that it had defaulted on interbank payments. |
| By late Friday, the markets had settled somewhat. The overnight lending rate between banks had dropped to 8.49 percent, down from a record-high fixing of 13.44 percent on Thursday, but still much higher than last month’s levels of less than 4 percent. | By late Friday, the markets had settled somewhat. The overnight lending rate between banks had dropped to 8.49 percent, down from a record-high fixing of 13.44 percent on Thursday, but still much higher than last month’s levels of less than 4 percent. |
| The situation remains volatile. Another benchmark rate for bank-to-bank borrowing costs, the seven-day repurchase rate, opened Friday at 8.1 percent, briefly soared as high as 25 percent and closed at 5.5 percent. | The situation remains volatile. Another benchmark rate for bank-to-bank borrowing costs, the seven-day repurchase rate, opened Friday at 8.1 percent, briefly soared as high as 25 percent and closed at 5.5 percent. |
| “Persistent tight liquidity conditions in China’s financial sector could constrain the ability of some banks to meet upcoming obligations on maturing wealth management products on a timely basis,” the credit ratings agency Fitch Ratings said in a report. Wealth management products are instruments sold to investors through banks and trust funds but do not appear on the financial companies’ balance sheets. | “Persistent tight liquidity conditions in China’s financial sector could constrain the ability of some banks to meet upcoming obligations on maturing wealth management products on a timely basis,” the credit ratings agency Fitch Ratings said in a report. Wealth management products are instruments sold to investors through banks and trust funds but do not appear on the financial companies’ balance sheets. |
| Referring to wealth management products, Fitch went on: “Issuance of new products, and borrowing from the interbank market, are among the most common sources of repayment for maturing W.M.P.’s, and the recent interbank liquidity shortage complicates both.” | Referring to wealth management products, Fitch went on: “Issuance of new products, and borrowing from the interbank market, are among the most common sources of repayment for maturing W.M.P.’s, and the recent interbank liquidity shortage complicates both.” |
Neil Gough contributed reporting from Hong Kong. | Neil Gough contributed reporting from Hong Kong. |