Escalating property crisis forces China to boost bank lending

08-Dec-2021 Intellasia | The Telegraph | 5:02 AM Print This Post

China has moved to bolster an economy flagging under the weight of an escalating property slump with new moves to bolster bank lending.

The world’s second-biggest economy, which is also under pressure due to its draconian zero-Covid strategy, is cutting minimum reserve requirements for its banks in a bid to improve the flow of credit to small businesses.

The People’s Bank of China said the decision would free up some 1.2 trillion renminbi (GBP 142bn) of cash to be pumped into lending as the economy faces its weakest growth since the era of Mao Zedong in 2022.

Economists had been on alert for the move after the Premier, Li Keqiang, signalled last week that the PBOC would cut the reserve requirement ratio at “an appropriate time” to shore up the economy.

The central bank said the action would “enhance the capital structure of financial institutions, raise financial services capabilities to better support the real economy”. The cut comes into force next week and is the second this year after a surprise move in July.

Traders had bought up China’s government debt in anticipation of the decision, pushing returns on 10-year debt, which move in the opposite direction to bond prices, to the lowest level for five months.

It came as ailing property giant Evergrande moved closer to a major restructuring amid fears it would struggle to make the latest repayments on its $300bn debt pile. Shares fell 15pc to their lowest since 2010.

Evergrande has emerged as the highest-profile symbol of China’s economic woes after falling foul of new regulations forcing property companies to strengthen their finances.

The country’s stringent restrictions on foreign travel and domestic lockdowns to control the virus also raise new risks for China in the face of the new Omicron variant, according to Oxford Economics.

Tommy Wu, the consultant’s lead China economist, said the potential rapid spread of the new strain had created “significant uncertainty”.

“China’s zero Covid tolerance approach, with the authorities continuing to clamp down on small outbreaks, will continue to weigh on consumption, despite the country having a vaccination rate close to 80pc of the population,” he warned.

The fears also prompted the Organisation for Economic Cooperation and Development think tank to cut growth forecasts for China next year in its latest estimates.

The OECD warned that a deeper Chinese slowdown could shake supply chains and trade, setting back the world’s recovery from Covid and costing about $1 trillion in lost global output over the next two years.

Laurence Boone, its chief economist, said: “Trade with China would slow, new disruption to supply chains could appear, and financial markets would very likely be particularly shaken by such a shock.”

https://sg.finance.yahoo.com/news/escalating-property-crisis-forces-china-133949532.html

 

Category: China

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