Credit Growth Accelerating In China

Xinhua News Agency reports about China's first acquisition loan lends out.

(emphasis mine)
[my comment]

China's first acquisition loan lends out
January 20, 2009

The China Development Bank signed a contract Tuesday to extend 1.63 billion yuan (240 million U.S. dollars) in acquisition loan to the CITIC Guo'an Group, the first such case after the country allowed banks to issue acquisition loan last month.

The China Banking Regulatory Commission (CBRC) allowed commercial banks to provide loans to domestic enterprises conducting acquisition both at home and abroad,
starting from December of 2008. [yet another of China's recent moves to liberate credit]

Commercial banks, including domestic urban and rural commercial banks and foreign banks in the country, must meet certain criteria to initiate the business. These included a capital adequacy ratio above 10 percent and a loan loss provision taking up more than one percent of the total loan, among others.
[there is still a lot of room for China to ease credit restrictions]

Xinhua News Agency reports that listed commercial banks allowed to trade bonds.

Listed commercial banks allowed to trade bonds
January 20, 2009

China's listed commercial banks will be allowed to trade bonds on the country's exchanges for a trial period of unspecified length, ending a ban imposed in 1997, securities regulators said. [China ended a decade long ban on commercial banks trading bonds]

Banks will need approval from the China Banking Regulatory Commission (CBRC) and then apply to stock exchanges for such trading, according to a web notice posted Monday by the China Securities Regulatory Commission (CSRC).

Transactions must be on a cash basis and can involve treasury, corporate, enterprise and other approved bonds during the trial, said the announcement.

Since the ban was imposed, banks have conducted bond trading through the interbank market.

According to an unidentified CSRC official,
the move represents an attempt to expand the bond market and sources of financing for businesses.

The CBRC and CSRC will monitor the trading and gradually expand the scope of banks' bond trading activities, based on results of the trial, said the announcement.

China banned commercial banks from exchange-based bond trading after banks illegally channeled bond-market repurchase agreement funds to the stock market.

Shanghai Daily reports that Citi gets approval for 3rd lending company.

Citi gets approval for 3rd lending company
January 13, 2009

Citibank (China) Co said Monday it has got regulatory nod to set up a lending company in Liaoning Province - its third on the Chinese mainland -as it taps demand for lending.

The United States-based bank is the first foreign bank to bring the model of a lending company to the mainland. Citi's third lending company will be located in Wafangdian near Dalian, a coastal city in the province. It has opened one in Hubei Province and another in Hubei will be opened in the first quarter, the bank said. But the bank didn't give a date when the Dalian company would open.

"Citi is committed to grow our business in China and we are delighted to be granted approval to establish a new lending company in Liaoning," said Andrew Au, chairman of Citibank (China) and chief executive of Citi China.

"We understand the importance of growing our business to less developed areas in China, and we believe that the lending company model we have introduced will contribute to the development of financial services in rural China," Au said.

A lending company doesn't take in deposits
[in other words, a lending company is more unstable and is dependent on functioning credit markets]. Citi is setting up these companies in less developed areas as authorities have encouraged more credit for the rural areas [Against all odds, it looks like Citigroup has found somewhere to make subprime loans again.]

Xinhua News Agency reports that China lowers threshold for bond market entry.

China lowers threshold for bond market entry
January 11, 2009

Experts saw the first announcement from the People's Bank of China (PBOC) in 2009 as the latest move to ease difficulties domestic companies encounter while trying to raise capital.

Companies now can issue bonds below 500 million yuan (73 million U.S. dollars) in the country's inter-bank bond market. The central bank lowered the threshold for market entry, which was set up in 2004, in an on-line statement Friday.

"The abolishment will make it easier for small and medium-sized companies (SMEs) to raise capital. It also reflects the PBOC's decision to help these companies," a bond trader, who declined to be named, told Xinhua Saturday.

Capital shortage has long been a bottleneck in the development of Chinese SMEs, as lenders tend to be reluctant to grant loans over concerns about risk.

The PBOC announced at a work meeting this week it would carry out short-term trial bonds for the country's small and medium-sized companies in 2009. It was also considering the issue of high interest bonds and SME united bonds in the inter-bank bond market.

Zhao Xijun, professor of finance with Beijing-based China Renmin University, also saw it as good news for companies wishing to raise capital through bond issuing.

"To wipe out the regulation on the minimum fund amount is necessary to create a favorable environment to encourage enterprises to issue bonds," he said.

Xinhua News Agency reports that smaller banks to have more room for lending.

Smaller banks to have more room for lending
January 11, 2009

China's small- and mid-sized commercial banks will be allowed bigger room in lending, the country's banking regulator said in Beijing on Saturday in its latest effort to ease credit for the slowed economy.

The loan-deposit ratio of small- and mid-sized lenders can exceed the required level "by a proper margin", said the China Banking Regulatory Commission (CBRC) in a statement on its website.

The CBRC prohibits Chinese commercial banks from lending out more than 75 percent of their total deposit to avoid liquidity crises. Saturday's statement didn't reveal whether the ceiling will be moved up for large lenders too.

Xinhua News Agency reports about China Development Bank (CDB) lending 120b yuan for Qinghai infrastructure.

CDB to lend 120b yuan for Qinghai infrastructure
January 21, 2009

China Development Bank (CDB) signed an agreement with Qinghai Province to provide at least 120 billion yuan (US$17.65 billion) in loans to the province before 2015.

The funds will be used to support infrastructure projects such as highways, airports, railroads and power facilities, the bank said Monday. [meanwhile, US infrastructure is falling apart...]

Loans will also go to industrial projects that draw on the province's local advantages, such as coal and salt lake, and
programs involving living standards such as settlement projects and environmental protection, CDB said. [programs aimed at raising Chinese living standards do nothing to help the US economy. In other words the US is only help my measures that help China's export sector, which China is allowing to shrink.]

My reaction: China looks set for strong credit growth. Points to take away from articles above:

1) The China Development Bank signed a contract Tuesday to extend 1.63 billion yuan (240 million U.S. dollars) in acquisition loan to the CITIC Guo'an Group, the first such case after the country allowed banks to issue acquisition loan last month.

2) Chinese commercial banks will be allowed to trade bonds, ending a ten-year ban imposed in 1997.

3) Citi gets approval for its 3rd lending company in China. Citigroup bringing the lending company model to the mainland. I must say, if China wanted someone to show them how quickly increase credit by making stupid, risky loans using unstable financial vehicles, they could not have chosen a better candidate than Citigroup.

4) China's small- and mid-sized commercial banks will be allowed bigger room in lending and can now exceed required loan-deposit ratio "by a proper margin."

5) Loans are being extended to build up China's infrastructure projects such as highways, airports, railroads and power facilities.


Why I am focusing on China right now

Right now, the entire US trade deficit is being funded directly and indirectly by China. China is pretty much the US's economy's last crutch, and, when China withdraws its support, there will be nothing left to keep the US and the dollar from a near total collapse. So developments in China are in some ways more important to the US than what happens in the US itself.


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