Wenzhou sails through lending clamp

Mainland efforts to rein in shadow banking, which contributed to the worst credit crunch in at least a decade, have not driven up costs for borrowers in at least one place: Wenzhou.

On June 20, as banks demanded a record 30 per cent to lend to each other for one day, small businesses in the export hub paid 23.42 per cent for one-month loans from pawn shops, small lending companies and individuals, according to data from a local government-backed agency. That's almost unchanged from this month's average of 23.17 per cent.

Stable borrowing costs in the coastal city that is a bellwether for informal lending may support policymakers' argument that the economy has enough financing. Premier Li Keqiang has urged banks to make better use of existing credit and the People's Bank of China has injected cash into particular lenders, rather than easing total funding, even after money-market rates jumped to a record and stocks entered a bear market.

"If you look at the growth rate of money supply or total social financing, it's quite obvious that the economy isn't short of liquidity," said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities. "It's just not where it should be."

Regulators are seeking to halt mainland banks' increased use of interbank borrowing and short-term deposits to finance long-term loans and investment in trusts. The crackdown might damage the economy by shrinking the non-bank funding that smaller companies relied on, Barclays said last month.

"The PBOC has basically declared war on the shadow banking industry," Michael Shaoul, chairman of Marketfield Asset Management, told Bloomberg TV. "I expect the PBOC to win that war, and unfortunately that's going to come at great cost to the domestic Chinese economy."