Credit growth may slow

China Daily European Weekly - - Business - By CHEN JIA chen­jia@chi­

Tighter mon­e­tary con­di­tions and slower credit growth are pos­si­ble in China next year, given ex­pec­ta­tions of higher do­mes­tic in­fla­tion and con­tin­ual in­ter­est rate hikes in the world’s ma­jor economies, with liq­uid­ity risks be­com­ing the top con­cern, ac­cord­ing to econ­o­mists.

Zhu Haibin, chief China econ­o­mist with JPMor­gan Chase & Co, ex­pects the Chi­nese mon­e­tary au­thor­ity to re­tain a “neu­tral” mon­e­tary pol­icy in 2018, which means bench­mark pol­icy rates, or the one-year de­posit and lend­ing rates, will stay at the cur­rent level, and there will be no change to the cash amount that should be re­served by com­mer­cial banks, or the re­serve re­quire­ment ra­tio.

Ac­tual to­tal so­cial fi­nanc­ing growth, as well as the credit ex­pan­sion rate, may slow mod­er­ately as the pol­icy fo­cus on delever­ag­ing will con­tinue next year, says Zhu.

“Pre­vent­ing ma­jor sys­temic risks” has re­cently been listed as the pri­or­ity for 2018 by the coun­try’s top pol­i­cy­mak­ers, along with poverty re­duc­tion and pol­lu­tion con­trol.

Begin­ing in the first quar­ter of 2018, a rapidly grow­ing in­ter­bank in­stru­ment — ne­go­tiable credit de­posits — will be in­cluded into the cen­tral bank’s Macro Pru­den­tial As­sess­ment frame­work, mean­ing it will be more dif­fi­cult for the banks to ex­pand their as­sets while avoid­ing a risky in­crease of in­ter­bank li­a­bil­ity through off-bal­ance-sheet busi­ness.

In Novem­ber, fi­nan­cial reg­u­la­tion was strength­ened on su­per­vi­sion of as­set and wealth man­age­ment prod­ucts and lend­ing to non­bank fi­nan­cial in­sti­tu­tions.

Econ­o­mists widely be­lieve that three in­ter­est rate in­creases of 25 ba­sis points each are likely in the United States in 2018, lead­ing the with­drawal of mon­e­tary eas­ing among the world’s ma­jor economies, which may also in­crease the pos­si­bil­ity of a rate hike in China in re­sponse.

The Peo­ple’s Bank of China, the cen­tral bank, raised the rates of seven-day and 28-day re­verse repo agree­ments and the rates of the medium-term lend­ing fa­cil­ity by 5 ba­sis points on Dec 14, af­ter the US Fed­eral Re­serve in­creased the bench­mark in­ter­est rate by 25 ba­sis points to a tar­get range of 1.25 per­cent to 1.5 per­cent — the third rate hike this year.

In­stead of ad­just­ing the bench­mark in­ter­est rates, the PBOC has re­it­er­ated that mon­e­tary pol­icy in the next year will fo­cus on proac­tively fine-tun­ing liq­uid­ity con­di­tions and im­prov­ing com­mu­ni­ca­tion with the mar­ket.

Ac­cord­ing to econ­o­mists, some flex­i­ble pol­icy tools, in­clud­ing the medium-term lend­ing fa­cil­ity and the re­verse repo, are likely to be used more of­ten to sta­bi­lize liq­uid­ity con­di­tions in the bank­ing sys­tem, and to smooth out sea­sonal, tem­po­rary volatil­ity. How­ever, the cen­tral bank said this does not mean changes in its mon­e­tary pol­icy stance.

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