Slowing Chinese economy threatens smaller banks - S&P
(27 August 2019 - China) Tightening financial regulations and slowing economic growth as the US-China trade war intensifies may force some of China’s smaller banks, including lower-tier city and rural commercial lenders, to merge with larger institutions or exit the market according to S&P Global Ratings.
Continued deterioration with Chinese manufacturing data is placing global recession concerns on high alert and have markets bracing for the next wave of monetary and fiscal stimulus. Geopolitical risks remain a key headwind for the global outlook and close attention remains on Hong Kong’s political turmoil along with ongoing Brexit uncertainty.
The US-China trade war remains tense as new escalated tariffs kicked in on September 1 that will undoubtedly weigh on both the US and Chinese economy with unpredictable knock-on effects all the way down highly complex and interconnected supply chains. The Trump administration applied tariffs on US$110 billion in Chinese imports, marking the latest escalation in a trade war that’s inflicting damage across the world economy as China retaliates. The 15 percent US duty applied to consumer goods such as shoes, apparel, textiles and technology such as the Apple Watch. A separate phase of US$160 billion in Chinese goods including technology such as phones and laptops will be targeted with 15 percent tariffs on 15 December, delaying a portion of the levies to lessen the impact on Christmas retail turnover.
“In our view, Chinese authorities are not, at this stage, comfortable with testing the potential reverberations of letting even a small bank abruptly fail. Rather, we expect regulators would arrange an orderly ‘exit’ if needed through a less-jolting medium: such as through restructuring or a merger with a larger institution” stated S&P credit analyst Liang Yu.
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