Jan. 11 (Bloomberg) — China’s four biggest banks may need to limit loan growth to about 14 percent this year under a new system created by the central bank for managing credit expansion, three people with knowledge of the matter said.
The proposal by the People’s Bank of China, communicated to lenders last week, uses variables including loan growth, minimum capital adequacy ratios and government targets for inflation and economic expansion to determine how much money individual banks must set aside as additional reserves, the people said, asking not to be identified because the system isn’t public.
Regulators are shifting away from a policy of relying on loan quotas to help steer an economy forecast to have overtaken Japan’s as the world’s second largest last year. Banks extended 7.95 trillion yuan ($1.2 trillion) of new credit in 2010, the PBOC said today, exceeding the official loan growth target.
“The PBOC is adopting a more scientific and transparent approach by aligning each bank’s loan growth with its financial strength and macro conditions,” said May Yan, an analyst at Barclays Capital in Hong Kong. “The quota system didn’t work really well last year, and now banks can probably stop wondering on what basis each one’s quota was set.”
Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., and Agricultural Bank of China Ltd. are the country’s four largest lenders, with a combined market value of $728 billion according to data compiled by Bloomberg.
The banks will set final lending targets for 2011 after so- called work meetings scheduled for this month and February, the people said. They are likely to plan credit expansion that ensures they won’t be subject to higher reserve ratios, according to the people.
Spokespeople at the banks declined to comment. A Beijing- based spokeswoman for the central bank wasn’t immediately available for comment.
China is trying to contain the fastest inflation in more than two years after record credit growth fueled the nation’s rebound from the global financial crisis. The PBOC required lenders to lodge a greater share of deposits with the authority six times last year to drain funds from the financial system.
Last year’s new lending marked a 19.9 percent expansion in outstanding loans in China, according to the central bank. The PBOC had targeted 7.5 trillion yuan of new loans for 2010.
The government aims for 4 percent inflation, 8 percent economic growth and 16 percent money supply expansion for 2011, people familiar with the matter said last month.
China’s five biggest banks are currently subject to an 18.5 percent reserve ratio requirement, while the level for smaller lenders is set at 16.5 percent. That excludes any temporary increases to the requirement that weren’t publicly announced.
Under the revised system, which also takes into account a bank’s systemic importance and economic cycles, credit expansion by a lender that isn’t matched by its capital strength would trigger an automatic increase in its required reserve ratio, according to the people. The ratios will be updated monthly, the people said.
The new system for assigning reserve requirements will be tested in the first quarter and may be modified after that, the people said.
ICBC and China Construction Bank, the country’s two largest lenders, were assigned minimum capital adequacy ratios of 10.5 percent and 10.4 percent respectively by the PBOC, the people said. Those ratios may change as the banking regulator sets new targets based on new global rules announced by the Basel Committee on Banking Supervision, they said.
The China Banking Regulatory Commission currently imposes an 11.5 percent minimum capital adequacy ratio on the biggest banks. CBRC Chairman Liu Mingkang said last month the watchdog plans to raise the ratio “moderately.”
“Credit targets can easily be circumvented by banks through off-balance-sheet activities, contributing to overshooting of the monetary aggregates,” Citigroup Inc. economists led by Shen Minggao said in a note published last week. “The use of reserve requirements addresses the availability of funding and is more likely to be successful in containing the growth of broad money.”
–Luo Jun, Zhang Dingmin, with assistance from Li Yanping. Editors: Philip Lagerkranser, Russell Ward
To contact the reporter on this story: Luo Jun in Shanghai at firstname.lastname@example.org
To contact the editor responsible for this story: Philip Lagerkranser at email@example.com
Could China be stepping in to buy Irish bonds?
CHINA HAS HINTED that it has begun to buy Portuguese government bonds, it is reported – suggesting that the world’s biggest emerging economy may be beginning to sweep up ownership of Irish debt.
The reports come after the country indicated its willingness to buy up Portuguese bonds, with its deputy foreign minister Fu Ying saying the country had “always given positive and favourable consideration” to buying bonds in countries where it was planning state visits.
That declaration came before last Thursday’s state visit from Fu to the struggling Iberian country – and was welcomed by the Portuguese government, with finance secretary Carlos Costa Pina declaring the Chinese interest as a vindication of a “strategy of diversifying our investor base.”
What’s more, the Financial Times reports that when Fu was joined by Chinese president Hu Jintao on Saturday for the latter two days of the visit, the topic of Chinese investment in the Portuguese state was high on the agenda.
“We’re willing to support, with concrete measures, the Portuguese impact of the current crisis,” Hu said, local media reported.
Last Monday, meanwhile, a Spanish news website quoted Hu as saying China was “willing to support the Portuguese efforts to reduce the impact of the crisis,” though there was no concrete proposal over the purchase of sovereign debt.
Last month, China said it had also invested in Greek bonds – a move that was similarly well-received in Athens as a vote of confidence in the Greek government’s measures to scale back its government spending.
China said on October 2nd it would buy further Greek bonds when Athens next issued new debt, and that declaration happened to coincide with the visit of the Chinese premier Wen Jiabao to Greece for two days at the start of the month.
China’s overtures to Portugal and Greece may be a sign of a broader national policy to invest in the bonds of struggling EU nations it believes could be the benefactors of international bailouts – meaning Ireland could potentially be a likely target for Chinese investment too.
Such suspicions could be further raised by the visit of Li Changchun, the Communist Party’s ‘Propaganda’ chief, to Ireland in late September, when the senior official discussed “economic issues and bilateral ties” with the Taoiseach, Brian Cowen.
Foreign affairs minister Micheal Martin also said in May that he hoped his own visit to China would result in more Chinese investment in the country.
An NTMA spokesperson told TheJournal.ie that it could not offer the identities of parties buying government bonds, as they were sold one to primary dealers who would then sell them secondhand.
The price of Irish government bonds has continued to rise this morning, standing at 8.831% as of 12:30pm, up from its upening price of 8.636%. The price had earlier peaked at 8.927%, sending the spread over similar German bonds to a record 622 basis points.
Then we have this article today from David McWilliams
Deep in the bowels of the earth, in a huge open cast mine in Port Hedland, Western Australia, the distinct sound of a lilting Cork accent crackled through the tannoy. A group of exhausted miners were sitting down after a shift in over 100 degrees desert heat, talking about a Chinese offer for the company, while the man from Ballincollig was directing traffic for the next shift of miners. These mines are so huge that drivers of the enormous Komatsu trucks communicate with each other via a central base. The coordinates of the trucks are then relayed to the miners to prevent them getting run over, because the cabins are so high off the ground that the drivers can’t see the miners below. At the epicentre of this elaborate traffic system was this lad from Ballincollig. He had been in Australia for a year – a typical casualty of the building downturn in Ireland. We chatted and, after about ten minutes, found out that we had two friends in common – an Irish quirk that made the Aussie miners laugh. I was making a documentary for ABC Australia and the section we were filming was about the influence of China and Chinese investment, particularly in Western Australia. Many Australians we interviewed, like these miners, conceded that Australia was China’s quarry and, over time, the Chinese would buy up, not just the raw materials, but the companies themselves in order to secure supplies. The Australian miners were worried about this prospect, not having any idea about what working for Chinese bosses would mean for them. Ballincollig’s finest interjected and suggested that it would be only a matter of time before the Chinese were buying stuff in Europe and that we in Ireland should welcome this. He said this would happen sooner than people expected. Last week, his prediction was realised when it was revealed that the Chinese are big buyers of Spanish government debt.
full articel here http://www.davidmcwilliams.ie/2011/01/11/time-for-a-chinese-bailout
China wants to divest itself from been the main investor of US Bonds and with the likelihood of a severe loss on the one trillion dollars worth they are looking to spread around their risk. Better to control commodities and by buying into various countries they can influence the Governments to bring about preferential import rules for their own exports and in Irelands case all that oil and gas just off the west coast could be an added incentive for them.
- China’s crouching commercial paper, hidden loan targets (ftalphaville.ft.com)
- China May Alter Reserve Ratios Monthly, Newspaper Says (businessweek.com)
- China Money: Bank reserves turn top weapon in liquidity fight (reuters.com)
- China Currency Reserves Rise to Record $2.85 Trillion (businessweek.com)