"Credit transmission is broken" in China


So says the country's Beige Book - a quarterly survey of Chinese businesses and banks. Banks have money to lend, but "fewer and fewer firms are doing any borrowing ... credit is largely being siphoned off by a privileged elite." As the pointed remark might indicate, this Beige Book is not a creature of Beijing, but instead a private effort.

"Bankers and the government may insist the credit spigot remains open, but it is not open for most and liquidity is not financing genuinely new economic activity.”

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Comments (5)
  • bbro
    , contributor
    Comments (11174) | Send Message
     
    "Genuine new economic activity" definition please??
    22 Jan 2014, 03:03 PM Reply Like
  • Tack
    , contributor
    Comments (16142) | Send Message
     
    "...credit is largely being siphoned off by a privileged elite."

     

    Sounds like a pronouncement by the usual Karl-Marx-like elements.
    22 Jan 2014, 03:25 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1760) | Send Message
     
    The first sentence of the linked article should help to clarify things: Although China’s economic prospects strengthened in the fourth quarter, the credit landscape remains largely bleak as many borrowers are shut off from bank credit and many new loans are made to roll over old ones, according to a survey of businesses here.
    22 Jan 2014, 04:09 PM Reply Like
  • canb888
    , contributor
    Comments (599) | Send Message
     
    Isn't that the same in the US? US Banks have so much cash at almost zero interest rate from the Fed and depositors that, in one instance, JPM speculated in the stock market to the tune of $350 Billion instead of lending to small businesses who are cash starved. JPM's story was just the tip of the iceberg and came to light only because they lost $7 Billion on the bet in one quarter. Look at the banks' deposit to loan ratios, they are not lending out a big chunk of cash they have. I guess they would say that they cannot find enough borrowers with acceptable credit. That's exactly what the Chinese big banks are facing too.
    22 Jan 2014, 05:09 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1760) | Send Message
     
    canb888, I think you're right but the next question is "what are the implications?" There is a tendency among some (or all, some of the time) to "take sides" from a political perspective and to lose sight of what these developments may mean for investors. Without going into too much detail, I would simply say that the quality and quantity of outstanding loans in China is a problem, many reforms to the Chinese business, financial, and judicial systems required to solve this may be on their way but are not yet in place so what is likely to happen in the meantime and will this be consistent with longer-term objectives of making markets more "decisive."

     

    The fact that there is also insufficient demand for China's surplus labor, savings, and productive capacity outside of China as well makes this problem more daunting, especially for less developed economies that are inherently more fragile. The markets have already been signaling the expected outcomes.
    23 Jan 2014, 08:26 AM Reply Like
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