China’s policy of monetary easing will not help the industrial sector, since it is not in need of financing, a Hong Kong General Chamber of Commerce lunch meeting was told Friday.
“Financing is not a bottleneck for the industrial economy right now … injecting liquidity will not help to boost demand in the sector,” said Gan Jie, a professor of finance at the Cheung Kong Graduate School of Business in Beijing who also teaches at the Hong Kong University of Science and Technology.
The fraction of industrial firms that said it is difficult to obtain loans dropped to 3 percent in last year’s fourth quarter from 12 percent in the second quarter, an academic survey done by Gan found.
The poll covered more than 2,000 industrial firms in the year’s last three quarters.
New loans to industrial firms fell 59 percent to 64.2 billion yuan (US$10.3 billion) during the period, Gan said, citing a report from the central bank.
Industrial firms need few loans, as investment in the sector has been sluggish because of overcapacity.
The root problem is weak domestic demand in the economy, she said.
The People’s Bank of China (PBoC) slashed the benchmark deposit rate by 25 basis points (0.25 percentage point) to 2.75 percent and cut the lending rate by 40 basis points to 5.6 percent in November last year, followed by a 0.5 percentage point cut in the reserve requirement ratio for banks early this month.
The market is expecting the central bank to inject more liquidity into the market as deflationary pressures set in and developed economies are, one after another, adopting monetary easing policies.
“The central bank may want to avoid a hard landing for the economy … Looser monetary policy may also be needed because we have no idea how serious the problem of local government’s bad debt is,” Gan said.
But in the long run, the industrial sector will mainly benefit from higher income levels and a lower savings rate, which can be achieved by opening up the private sector and improving public services to mitigate people’s worries about the future, she said.
The survey showed that business sentiment in the coal mining and washing sector is the worst among all subsectors, followed by processing of petroleum and nuclear fuel, and processing of wood products.
But overall, more firms said they are seeing an improvement in excess capacity. Three-fifths said supply was in line with demand in the last quarter.
More than 80 percent of the firms polled said they were optimistic or cautiously optimistic about the business outlook in three to five years, Gan said.
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