Credit tightening in China to continue, BAML says
Bank of America Merrill Lynch says Beijing is likely to continue with its campaign to rein in the shadow banking sector and tamp down credit growth in the second half
There is more policy tightening ahead for China as authorities step up efforts to rein in the shadow banking sector, according to the chief greater China economist at Bank of America Merrill Lynch (BAML).
Shadow banking or off-balance-sheet lending, which takes place outside official banking channels, is not regulated. However, these platforms have played an important role as the go-to credit supplier for small enterprises because state-owned banks often prefer to lend to state-controlled entities.
Shadow banking assets in China grew 21 per cent in 2016 to 64.5 trillion yuan (US$9.4 trillion), equivalent to 87 per cent of gross domestic product, according to ratings agency Moody’s Investors Service.
The China Banking Regulatory Commission has unleashed a series of measures to strengthen supervision of the lending sector this year. In May, the regulator issued rules requiring banks to be more transparent about wealth management products, the single largest component of the shadow banking sector.
Beijing is concerned about mounting risks to the financial system as much of the borrowing is being used to speculate on assets rather than support the real economy.
Meanwhile, the People’s Bank of China raised a set of key short-term interest rates at the start of this year.
Helen Qiao, chief greater China economist at BAML, believes the administrative tightening measures reflect Beijing’s priority on deleveraging and cutting debt levels, adding that tightening is “far from being done”.