Chinese banks cutting loans to rein in growth.CHINA is collecting accolades for efforts to slow down the nation's allegedly excessive growth. The jury is still out, though, especially with respect to the government's instructions to the banks. While most countries of the world despair about a lack of growth, China says its economy is expanding too last. And the government of China believes this so much that it has embarked on policies to slow the economy. The official goal of the government is to slow growth to 7 percent this year. China's economy grew 9.6 percent in the second quarter and 9.8 percent in the first three months of this year. To slow growth the government has concentrated on certain rapidly expanding industries that it decided needed to be suppressed. The suspect growth industries include steel, cement, property and automobile manufacturing. Accordingly, Premier Wen Jiabao Wen Jiabao (wĕn` jyä`bou`), 1942–, Chinese political leader, b. Tianjin. Originally a geologist, he worked for the Gansu provincial geological bureau (1968–82), where he was the head of its political section, and rose to deputy in April and May ordered domestic banks to restrict lending to the targeted industries. In effect, the banks have become a policy arm of the government as it attempts to centrally plan the reduction in the country's economic growth. And the banks were more than happy to comply, though it may turn out they went too far. The China Daily reported that new bank loans in the first six months fell 350 billion yuan Yuan (yüän), river, 540 mi (869 km) long, rising in S Guizhou prov. and flowing generally NE to Donting lake, Hunan prov., SE China. Navigation above Changde is limited by rapids to small craft. from a year earlier. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a report on the People's Bank Peo´ple's bank 1. A form of coöperative bank, such as those of Germany; - a term loosely used for various forms of coöperative financial institutions. of China's Web site, the decline in new loan creation in June alone was 239.5 billion yuan. The central bank reports these numbers under the header: "The faster-than-desired expansion of credit was reined in effectively." The banks are in a peculiar situation. They are supposed to be commercial enterprises on one hand but instruments of the government's policy-makers on the other. Where does this lead? At this rate, what China isn't going to produce is a legion of battle-tested, market-savvy commercial bankers. Instead, the successful Chinese banker will have one eye on his customers and the other on what will be the next round of central planning policy to come down from the top of the government. If the banks overreacted by cutting loans faster than the government wanted, as China Daily reported, then is there a scenario wherein where·in adv. In what way; how: Wherein have we sinned? conj. 1. In which location; where: the country wherein those people live. 2. the government's directives could set off a collapse of credit? When a government commands that certain basic industries must be cut out of the credit chain, it invites a possible chain-reaction style financial panic. Sensible banks would respond by pulling back exposure everywhere because a credit crunch Credit Crunch An economic condition whereby investment capital is difficult to obtain. Banks and investors become weary of lending funds to corporations thereby driving up the price of debt products for borrowers. in an industry like steel or automobiles could have vast implications for debtors in all industries. And this is what must be happening right now. The only reason why it hasn't happened on a large scale is that the bankers must have some unshakable faith the government is ultimately in control of the economy. So they might be figuring: How wrong can things go? What in turn does the government think about the banks? We learn something of how competent the government thinks its bankers are by reading the recent remarks of Liu Mingkang, chairman of the China Bank Supervisory Commission. According to the commission's Web site, the chairman has told banks to improve their ability to differentiate between profitable clients and those who might turn into bad credit risks. Presumably pre·sum·a·ble adj. That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. this advice is suspended if a profitable client is from among the shunned growth industries. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , act like a capitalist bank until you fred out your loans have gone sour--then put on a red suit and play like Santa Claus Santa Claus: see Nicholas, Saint. Santa Claus jolly, gift-giving figure who visits children on Christmas Eve. [Christian Tradition: NCE, 1937] See : Christmas Santa Claus . David DeRosa, adjunct finance professor at Yale School of Management The Yale School of Management (also known as Yale SOM) is the graduate business school of Yale University and is located on Hillhouse Avenue in New Haven, Connecticut, United States. The School offers M.B.A. and Ph.D. degree programs. and author of "In Defense of Free Capital Markets," is a columnist with Bloomberg News. |
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