Date
23 October 2017
Guo Shuqing, the new chairman of the China Banking Regulatory Commission, is leading the regulatory assault on shadow banking. Photo: Reuters
Guo Shuqing, the new chairman of the China Banking Regulatory Commission, is leading the regulatory assault on shadow banking. Photo: Reuters

China’s credit slowdown poses a threat to global growth

China has tightened monetary policy and cracked down on off-balance sheet and interbank lending as part of efforts to rein in its overleveraged financial system.

While the country is not likely to create another global financial scare as it did in 2015 and at the start of 2016, its moves to slow down credit could pose a threat to global growth, James Mackintosh asserts in his column in the Wall Street Journal.

Guo Shuqing, the new chairman of the China Banking Regulatory Commission, apparently means business, issuing a series of orders targeting  “regulatory arbitrage” or rule-dodging.

“Basically every commercial bank in China is involved in at least some of the long list of activities now targeted by regulators,” Chen Long of Gavekal Dragonomics was quoted as saying in a note to clients.

As a result of Guo’s actions against shadow banking, yields on Chinese bonds have risen while stock prices in Shanghai and Shenzhen have dropped, Mackintosh said.

But China watchers believe that the authorities won’t do anything to risk upsetting the economy, especially before the Communist Party’s national congress this autumn, when Xi Jinping is expected to be elected to another term.

Despite concerns over its burgeoning debt, China has demonstrated time and again that it can delay the moment of reckoning, Mackintosh said.

“Slower growth with less new debt would be a good thing, so long as the old debt can be contained,” he said.

But a slowdown in credit would hurt growth and this could spread to the rest of the world, Mackintosh said.

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