Move will help con­tain risks that might emerge in bat­tle to com­bat debt lev­els

China Daily (Hong Kong) - - BUSINESS - By LI XIANG lix­i­ang@chi­

China is likely to slightly loosen its credit pol­icy in the sec­ond half of the year.

This will help to con­tain risks that could emerge dur­ing the process of eco­nomic delever­ag­ing and dis­pos­ing of loss-mak­ing “zom­bie” com­pa­nies, an­a­lysts said.

Li Xun­lei, chief econ­o­mist at Zhong­tai Se­cu­ri­ties Co Ltd, said that the mone­tary au­thor­ity will likely guide more on-bal­ance sheet bank loans into the mar­kets to en­sure suf­fi­cient credit sup­ply af­ter the reg­u­la­tors moved to con­tain surg­ing risky off­bal­ance sheet fi­nanc­ing by banks.

“Things will be­come more trans­par­ent and risks will be bet­ter man­aged by bring­ing the fi­nanc­ing back onto the banks’ bal­ance sheets,” Li said.

Mone­tary of­fi­cials and pol­i­cy­mak­ers in Bei­jing have main­tained that China will con­tinue with a pru­dent mone­tary stance. But they have also em­pha­sized the im­por­tance of pol­icy fine-tun­ing to “pro­vide a good credit and fi­nan­cial en­vi­ron­ment” for the struc­tural re­forms.

Mar­ket in­ter­est rates have

Things will be­come more trans­par­ent and risks will be bet­ter man­aged ...” Li Xun­lei, chief econ­o­mist at Zhong­tai Se­cu­ri­ties Co Ltd

been on the rise as the reg­u­la­tors pushed fi­nan­cial delever­ag­ing to curb risks and in­creased the crack­down on ir­reg­u­lar­i­ties in the shadow bank­ing sec­tor.

The weighted av­er­age lend­ing rate has climbed above 5.5 per­cent since the sec­ond quar­ter of the year, ac­cord­ing to data from the Peo­ple’s Bank of China. Com­pa­nies have also been can­cel­ing their bond is­suance plans due to higher in­ter­est rates.

Ba Shu­song, chief econ­o­mist at the China Bank­ing As­so­ci­a­tion, said in an ar­ti­cle pub­lished in Fi­nan­cial News, the PBOC-af­fil­i­ated news­pa­per, that higher in­ter­est rates could un­der­mine cor­po­rate prof­itably, which will harm the delever­ag­ing ef­fort.

Ba said eas­ing credit pol­icy could help off­set the neg­a­tive im­pact of higher in­ter­est rates on smaller busi­nesses.

The Chi­nese gov­ern­ment has made eco­nomic delever­ag­ing a top pol­icy pri­or­ity. Cut­ting the debt ra­tio of State- owned en­ter­prises, ac­cel­er­at­ing the dis­posal of the zom­bie com­pa­nies, and sta­bi­liz­ing the rise of eco­nomic lever­age have been the short-term tar­gets. This long-term goal is to im­prove cor­po­rate ef­fi­ciency through mar­ket-ori­ented re­forms.

Yu Pingkang, chief econ­o­mist at Chang jiang Pen­sion In­sur­ance Co Ltd, said that a slightly loos­ened mone­tary pol­icy to pre­vent any sub­stan­tial eco­nomic down­turn can be ex­pected as the gov­ern­ment has lim­ited lever­age in its fis­cal pol­icy.

Li at Zhong­tai Se­cu­ri­ties said that pol­i­cy­mak­ers would take the step in the sec­ond half of the year to ac­cel­er­ate the delever­ag­ing of SOEs as pri­vate in­vest­ment had picked up in the first half and will off­set the po­ten­tial de­cline of SOEs’ in­vest­ment.


A boy in­ter­acts with a ro­bot from Agri­cul­tural Bank of China at the 25th China In­ter­na­tional Fi­nance Ex­hi­bi­tion in Bei­jing on July 28.

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