China’s banks cut off private loans
(5 May 2011 – China) Alarms are sounding throughout the world economy as China’s state-owned banks choke off credit to private enterprises.
Beijing’s inflation-fighting policies have left state-owned companies unscathed; however private sector borrowers say they are being forced to choose between bankruptcy and underground loans.
Private borrowers who still had access to credit were paying interest rates of between 60 and 70 percent to underground financiers.
Head of the Small & Medium Enterprise (SME) Development and Promotion Association at Wenzhou Zhou Dewen said monetary policy is tighter now than before the global financial crisis.
''For SMEs it is a crisis of survival [and] several commercial and industrial companies have been forced into bankruptcy,'' he said.
The People's Bank of China has gently raised interest rates - with one-year lending rates at 6.31 per cent - while significantly tightening credit quotas and capital requirements.
Required reserves ratios for major banks have risen from 15.5 percent in December 2009 to a record 20.5 percent, with PBOC governor Zhou Xiaochuan last month warning that there was no ''absolute'' limit to how high they could go.
The big banks have responded by cutting off loans to private lenders while keeping credit channels open to state-owned enterprises.
Credit Suisse economist Dong Tao yesterday linked the slowdown with the financial stress being imposed on non-state borrowers. ''The inflation risk is big, the growth risk is coming,'' he said. He recently released a research note titled China: Ringing the Alarm Bell.
''The manufacturing and export side is getting hit this time [and] property developers haven't had bank credit for a while now.''
In the short term, the Australian economy is likely to be insulated from China's private-sector credit crunch because demand and prices for key commodities remain firm.
Private borrowers who still had access to credit were paying interest rates of between 60 and 70 percent to underground financiers.
Head of the Small & Medium Enterprise (SME) Development and Promotion Association at Wenzhou Zhou Dewen said monetary policy is tighter now than before the global financial crisis.
''For SMEs it is a crisis of survival [and] several commercial and industrial companies have been forced into bankruptcy,'' he said.
The People's Bank of China has gently raised interest rates - with one-year lending rates at 6.31 per cent - while significantly tightening credit quotas and capital requirements.
Required reserves ratios for major banks have risen from 15.5 percent in December 2009 to a record 20.5 percent, with PBOC governor Zhou Xiaochuan last month warning that there was no ''absolute'' limit to how high they could go.
The big banks have responded by cutting off loans to private lenders while keeping credit channels open to state-owned enterprises.
Credit Suisse economist Dong Tao yesterday linked the slowdown with the financial stress being imposed on non-state borrowers. ''The inflation risk is big, the growth risk is coming,'' he said. He recently released a research note titled China: Ringing the Alarm Bell.
''The manufacturing and export side is getting hit this time [and] property developers haven't had bank credit for a while now.''
In the short term, the Australian economy is likely to be insulated from China's private-sector credit crunch because demand and prices for key commodities remain firm.
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