Chinese banks extended new local currency loans of an estimated 700 billion Yuan ($103 billion) inJuly. The estimate was made after sources said China’s four biggeststate-owned banks, including Industrial and Commercial Bank ofChina, lent a combined 243 billion Yuan last month.
China has tried to pull on the reins of liquidity this yearas it retreats from an ultra loose monetary policy in 2009. Amongother cooling steps, the People’s Bank of China has ordered banksto put more funds into reserves with the central bank, instead oflending them out, three times so far this year.
Reports state that about 23 percent of the 7.66 trillion Yuan ($1.13 trillion) that banks had lent to local governments, mainly to finance infrastructure, could become non-performing. Source at China Banking regulator says that banks could mitigate credit risk by, for example, requiring the borrowers to set aside more collateral. The estimate of the percentage of loans at risk was based on the banks’ own investigations at the behest of the China Banking Regulatory Commission, the source added.
Fidelity Fund Manager Anthony Bolton said he sees China’s sagging domestic stock market and tepid investment flows into the country as opportunities, and expects China to loosen its lending policy by the end of 2010. "The pressure that made the government tighten (lending) in the first place will wane towards the end of this year," said Bolton at a news briefing on Thursday.
There was a risk, however, that China’s policy tightening so far could lead to a significant slowdown, he said. Data released by Beijing on Thursday showed that China’s economy slowed in the second quarter as the government steered monetary and fiscal policy back to normal after a record credit surge last year to counter the global crisis. Bolton, Fidelity International’s investment figurehead, launched a China fund earlier this year, taking the unusual step of putting 2.5 million pounds ($3.8 million) of his own moneyinto the fund. In April, Fidelity said it had raised 460 million pounds ($709.7 million) for Bolton’s fund, falling short of a targeted 630 million pounds. Despite the downside risks, Bolton expressed optimism about China’s A-share market, saying he expected the bull market to reassert itself near the end of the year. "The tightening process that started late last year is also slowing the economy, although growth is still well above that being seen in developed markets," Bolton said. He favours China’s consumer sector, which has been growing strongly as a result of government stimulus efforts, financials and utilities, and is cautious on heavy industry and commodities. The Shanghai Composite Index is the worst performing equity market in Asia so far this year, having fallen 25 percent on fears of a slowdown in China and a crackdown on speculation in the property market.
