Wednesday, April 28, 2004

Wow, the mainland is resorting to the "one-knife cut" method sooner than I had expected. With inflation still relatively low, they have ordered a suspension in new loans before the May 1st holiday, which means that the suspension will last for two weeks. We really haven't seen this high handed tactic since 1993. One reason might be that inflation in some major cities might be quite high already, and the Chinese government just didn't want to admit it. Another reason might be that they really didn't want to raise interest rate (which draws more hot money from abroad), so they are forced to do this. See the article below:

Thursday, April 29, 2004

Mainland banks suspend new lending
Regulator and central bank deny they are responsible for the move despite top-level concerns about overheating


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Mainland commercial banks have stopped issuing new loans until Saturday, in a move reflecting growing official anxiety over China's overheated economy.
Bank of Communications, Shanghai Pudong Development Bank, China Merchants Bank and Shenzhen Development Bank said they would not issue any loans until May 1, suggesting the government may soon announce tighter loan policies to help slow economic growth.

"All lending has been suspended," said Shi Guang, a loans officer at Shenzhen Development Bank in Shanghai. "It's possible some new policy will come out during the holiday [next week]."

The freeze on lending came as Premier Wen Jiabao warned yesterday that "very forceful" moves were needed to control overheating. President Hu Jintao has also spoken in recent days of imminent administrative measures to contain unsustainable growth.

"We have been told to suspend all our loan business until May 1," said Guo Yi, a loans officer at Pudong Development Bank. "It's a decision from the very top."

China Banking Regulatory Commission spokesman Li Shaopeng said it had "been admonishing banks to control excessive loan growth", but he denied the regulator ordered the banks to suspend lending.

"We have never asked banks to suspend new loans," Mr Li said.

Sources at each of China's Big Four state-owned lenders - Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China - reported receiving an official directive this week to "suspend new loans until May 1".

"These banks are effectively state-controlled and therefore their lending practices aren't dictated by a combination of market conditions and risk management, but by letters they receive from the regulators," said Andrew Salton of Standard Life Investments in Hong Kong.

China's economy grew 9.7 per cent year on year in the first quarter, after expanding 9.1 per cent last year. Lending by financial institutions surged 21 per cent to 17.9 trillion yuan in the year to March, indicating that earlier government measures to control loan growth have been ineffective.

"Previous attempts at monetary tightening [have not done the job]," said an analyst at Guotai Junan Securities in Shanghai. "This new loan suspension reflects the central government's determination to rein in overinvestment."

The People's Bank of China this week raised the amount of cash banks must set aside as reserves for a third time in seven months. The central bank has also increased interest rates on loans to commercial banks and sent inspectors to examine provincial bank branches' lending to steel, cement and other projects.

On Tuesday, the State Council reduced the percentage of debt companies may use to fund steel, cement, aluminium and property projects.

Companies must now put up at least 40 per cent of the capital for steel projects and 35 per cent for the other three industries, raised from 25 per cent previously.

Mainland leaders have been warning of legal consequences for officials who ignore their exhortations to cut back on blind investment.

China Central Television reported yesterday that eight officials, including a Bank of China branch manager, have been punished for illegally approving loans for a 10.5 billion yuan steel project in Jiangsu province.

Central inspectors are also investigating provincial and municipal trust and investment firms that are pumping loans into a sizzling property boom. Real-estate investments ballooned 41 per cent in the first quarter to 182 billion yuan. One mainland banker speculated that the PBOC initiated the ban on bank loans after seeing preliminary lending numbers for this month, despite official denials from the central bank.

"The PBOC has the lending numbers for the first three weeks of April. It may be the case that lending growth was not falling even with the previous warnings," the banker said.

PBOC spokeswoman Bai Li said: "There is no official notice. Even if there are some commercial banks that decided to stop lending, they made the decision by themselves based on their own situation."

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