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China's Central Bank Vows To Fight Credit 'Crisis'

This article is more than 10 years old.

China won't say it has a credit crisis.  But consider that one significant fixed investment fund was recently unable to pay investors interest on a roughly $423 million bond. The Industrial and Commercial Bank of China found a white knight last month for its Credit Equals Gold #1 trust fund. That white knight was probably sitting in an office on Chengfang Street in Beijing, home to the People's Bank of China.

On Saturday, the Bank said it will apply monetary policy instruments in the coming months to keep liquidity at an appropriate level and achieve reasonable growth in credit and social financing.  China already has reasonable growth, so the concern might be that the current growth levels are unsustainable.

The Central Bank also said it will be more transparent with the market and promised "stable performance" of interest rates, which hit double digits twice last year on risks tied to non-performing loans at smaller, municipal level banks.

China's Central Bank says it will starve credit crisis. Promises transparency.

The Bank said it will continue carrying out "policy fine-tuning in a timely and appropriate manner".

The note didn't provide much relief to investors, who continued to sell out of Chinese equities on Monday. The iShares FTSE China (FXI) exchange traded fund was down nearly 1% in early afternoon trading in New York and the MSCI China index was off by 0.75%.

China's official manufacturing activity indices, the HSBC and the National Bureau of Statitics' surveys, both declined in January. Investors are worried that the Chinese economy is moving towards slower than expected growth. The market is now waiting to see what the February PMI numbers look like.

The National Bureau of Statistics' PMI dropped to a six-month low of 50.5 percent in January from 51.0 in December. HSBC's PMI was 50.3.

Where China Lends

According to preliminary statistics released Saturday by the Central Bank,  Chinese banks had 71.9 trillion yuan ($11.9 billion) in outstanding loans in 2013, posting a year over year growth of 14.1%. Outstanding loans recorded a full-year increase of 8.89 trillion yuan, up 687.9 billion yuan year over year.

By loan term, at end of 2013, the outstanding amount of short-term loans and bill financing to enterprises and other sectors increased by 12.1% yearly to 26.12 trillion yuan.  Medium to longer term debt rose by 9% to around 28.2 trillion yuan.

Within the various sectors of the economy, banks had 6.6 trillion yuan outstanding as of the end of December for manufacturing firms, an increase of 4.2%.  Service sector loans posted an outstanding amount of 17.66 trillion yuan, rising by 11%.  Chinese farmers and agribusiness had an outstanding amount of 17.29 trillion yuan on the books in December, a jump of 18.9%.

But the biggest jump of all in percentage terms should come as no surprise for China-watchers.

Chinese and foreign-funded banks posted an outstanding amount of 14.61 trillion yuan, rising by 19.1% year over year, an 0.1 percentage points increase from the third quarter. Plus, the full-year increase in yuan property lending expanded by

998.7 billion yuan from 2012 to 2.34 trillion yuan, accounting for 28.1% of the total loan increases in the same period. That's also 0.5 percentage points higher than the loan volume recorded between January and September.

Property remains a sore point for the Chinese economy.  In the middle of 2013, the Central Bank warned muni lenders about non-performing loans, many of which have gone to real estate developers.  The Bank worried markets when it said it would not save smaller banks from bad loans.  Money market rates soared  until the Central Bank did an about-face and said it would indeed save banks in a vow to fight China's own home-grown credit crisis.

See: China Capital Account Swings To Surplus -- China Daily