Chinese banking sector warned it faces day of reckoning as decade of easy money ends
A senior regulator tells a forum the US$38 trillion sector cannot expect government to allow further credit expansion
A moment of truth is arriving for China’s vast banking industry after a decade of exuberance, a senior regulator warned on Thursday.
With the US Federal Reserve on track for further monetary tightening and the US-China trade war continuing, the yuan will face continued downward pressure, said Yu Xuejun, the chairman of the supervisory board for key state-owned financial institutions at the China Banking and Insurance Regulatory Commission.
Yu predicted that the industry, which has US$38 trillion in assets, will see a surge in non-performing loans, but told a financial forum in Beijing that the government cannot allow another round of large-scale credit expansion as it is still trying to address the problems generated by previous stimulus efforts.
“The previous large increase in bank credit already poses an overhanging risk [to the Chinese economy] and the external monetary environment has obviously changed,” Yu cautioned.
“The continued interest rate hikes by the Federal Reserve have exerted depreciation pressure on currencies like the yuan and make it difficult for [the government to allow more] monetary expansion,” he added.
Yu’s comments come after the growth rate in world’s second largest economy eased slightly in the second quarter to 6.7 per cent.
The outlook is for continued slowing in the second half of this year, given the investment growth rate plunged to new low of 5.5 per cent in the first seven months while Washington has threatened to slap heavy tariffs on an additional US$200 billion of US imports from China.
A new round of US tariffs on $16 billion worth of Chinese imports went into effect on Thursday, with Beijing retaliating immediately with its own levies on the same amount of American goods.