The People’s Bank of China (PBOC) asked the largest banks in the country to restrain lending growth until the end of the year due to fears of a “bubble”, writes Bloomberg, citing knowledgeable sources.
According to the agency, this issue was discussed at a meeting on March 22.
The regulator called for limiting the issuance of new loans and foreign banks.
The NBK wants lending institutions to focus on lending in industries such as technology innovation and manufacturing.
In 2020, Chinese banks issued loans in the amount of 19.6 trillion yuan ($ 3 trillion), with about 20% accounted for by inclusive financing, including small business lending.
If banks issue the same amount of loans this year, the balance of debt will grow by about 11% – up to 192 trillion yuan.
This is the lowest growth rate in more than 15 years.
“On the one hand, credit growth will slow down, but on the other, this slowdown will be quite moderate,” said chief economist for China at Nomura Holdings Inc. Lu Ding.
In January-February of this year, the volume of new loans amounted to 4.9 trillion yuan, which is 16% more compared to the same period in 2020.
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In February, the Chinese Central Bank instructed banks to maintain lending in the first quarter at the level of January-March last year, the Financial Times reported.
Against the backdrop of taking the coronavirus under control and recovering the economy, the PRC authorities are again trying to reduce risks, especially in the financial sector and the real estate market.
Earlier, the head of the China Banking and Insurance Committee (CBIRC) Guo Shuqing warned of the risks of bubbles in these sectors, which raised concerns about the prospects for tightening monetary policy.
The Chinese government wants to take advantage of the economic recovery to ease its debt burden. Last year, amid the pandemic, China’s debt-to-GDP ratio reached nearly 280%.
Much of the debt has accumulated since the 2008-2009 global financial crisis, when China relied on lending growth to curb a downturn.
Efforts to reduce debt growth in 2017 led to higher money market rates.