China puts clamps on credit in short-term

TIGHTER credit conditions in China are having an impact on business investment in Australia, but the head of Treasury says he is confident the Asian giant can absorb any financial shocks.

Treasury Secretary John Fraser says China is maintaining a strong rate of economic growth of about 6.5 per cent as it seeks to balance expansion and economic stability.

But its recent growth had been supported by higher credit intensity, Mr Fraser told the Stockbrokers and Financial Advisors Association conference in Sydney.

“The Chinese authorities are aware of the risks and are implementing measures to maintain stability,” he said.

“This is all the more timely and necessary.”

Moody’s yesterday downgraded its credit rating on China by one notch, citing the likelihood of a material rise in economy-wide debt.

The Australian dollar lost almost a third of a US cent to US74.55 cents on the downgrade, but has since recovered some ground.

Business investment volumes remained strong, but there had been an impact of tightening credit availability in China, Mr Fraser added.

“Our view is that China’s economy is also of such a size that some shocks may be more easily absorbed than would be the case in smaller economies,” he said.

“The good news is that other large Asian economies, including India and Indonesia, continue to show strength and there has also been some pick up in growth in Japan.”

Mr Fraser, who also sits on the board of the Reserve Bank of Australia, joined the chorus of concerns about the local property market, warning household debt has been rising faster than incomes.