Struggling to keep the lid on:
China “On April 27th, the central bank raised interest rates for the first time in 18 months, by 0.27%, and announced “guidelines” to control lending to a dozen industries. ”
In urban areas (fixed investments) grew by 32.7%, year-on-year, in March alone. The government had been hoping to keep growth in such investment to 18% this year
Trade surplus and money supply:
The trade surplus leads to large inflows of foreign currency … The central bank usually curbs this money-supply growth by borrowing back much of the excess yuan … (CB) relaxed these efforts to offset the potential impact of an upward revaluation of the yuan in July. The result was a surge of cheap credit. This will inevitably mean bad news for the banks when some of these loans eventually turn bad. In the first quarter, industrial profits rose by 21.3%, but losses by 32.3%.
(Related: Lieberthal talked about the whole political system is geared toward growth–regardless the type of growth–so it is now actually hard to curb growth)
If its banks worked, China could grow even faster
In a study (”Putting China’s Capital to Work: The Value of Financial System Reform”) to be published on May 4th the McKinsey Global Institute, the consultancy’s economics think-tank, calculates that China’s GDP would be a staggering $320 billion, or 16%, higher if its lenders knew how to lend.
$260 billion—would come from redirecting loans to more productive parts of the economy … private enterprises, which contribute 52% of GDP but account for only 27% of outstanding loans.
a recent paper by economists at the International Monetary Fund found little evidence that Chinese banks’ lending decisions had become more commercial.
Yet the long-running attempt of a consortium led by America’s Citigroup to purchase 85% of Guangdong Development Bank (GDB) … rules limit foreign investors to buying a total of 25% of a Chinese bank. No single investor is allowed more than 20%.