China’s credit boom is unlikely to lead to a credit crunch as the government is fiscally strong enough to absorb a bubble, Fitch Ratings said.
But nonetheless it must remain cautious of the timing of its stimulus withdrawal this year, according to Fitch senior director Peter Tebbutt.
Speaking at a banking conference yesterday, Tebbutt said the credit crunch that occurred in the United States and Europe that ultimately led to asset price collapses is unlikely to happen in China, as the government remains the owner of all the banks and most of the borrowers.
“The government is in a position to continue to force lending, borrowing and spending,” Tebbutt said.
He said that the government was aware of the dangers of a bubble, and as such had begun to gradually manage it through tightening loan growth, but these moves must be carefully timed to avoid clamping down too hard and causing a credit crunch.
China’s debt to gross domestic product level stands at about 20 per cent - against a developed-country average of 90 per cent - with additional loan growth from the middle of 2008 to the end of this year at about 50 per cent of GDP. Assuming that a fair proportion of those loans would not be repaid, the government would still be able to “foot the bill” of a bubble.
“It’s a reasonable price to pay to prevent social unrest and a credit crunch,” Tebbutt said. “You can only deflate a bubble if you have the reserves. Japan didn’t.”
Speaking at the same conference, Economist Intelligence Unit Asia global forecasting director Jan Friederich said that the Chinese government has a clear understanding of the dangers of a lending binge, but it would be able to take on all the bad debt that might be created, though there would be substantial market volatility this year because of worries over the phasing out of stimulus measures.
He also said that analysts have to be careful of extrapolating trends from short-term economic indicators, such as quarterly retail figures, as underlying growth factors are likely to fluctuate this year.
He added that while Asian countries must stay vigilant over the inflow of capital from the US owing to continuing expansionary monetary policy, China’s situation is slightly different as its liquidity is almost entirely domestically created rather than imported.
Friederich said that Asian economies showed exceptionally strong macro performance from the start of the recession, having learned the lessons of the 1997 financial crisis.
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Mainland can ‘foot the bill’ of a credit bubble
Isabella Steger
28 January 2010
China’s credit boom is unlikely to lead to a credit crunch as the government is fiscally strong enough to absorb a bubble, Fitch Ratings said.
But nonetheless it must remain cautious of the timing of its stimulus withdrawal this year, according to Fitch senior director Peter Tebbutt.
Speaking at a banking conference yesterday, Tebbutt said the credit crunch that occurred in the United States and Europe that ultimately led to asset price collapses is unlikely to happen in China, as the government remains the owner of all the banks and most of the borrowers.
“The government is in a position to continue to force lending, borrowing and spending,” Tebbutt said.
He said that the government was aware of the dangers of a bubble, and as such had begun to gradually manage it through tightening loan growth, but these moves must be carefully timed to avoid clamping down too hard and causing a credit crunch.
China’s debt to gross domestic product level stands at about 20 per cent - against a developed-country average of 90 per cent - with additional loan growth from the middle of 2008 to the end of this year at about 50 per cent of GDP. Assuming that a fair proportion of those loans would not be repaid, the government would still be able to “foot the bill” of a bubble.
“It’s a reasonable price to pay to prevent social unrest and a credit crunch,” Tebbutt said. “You can only deflate a bubble if you have the reserves. Japan didn’t.”
Speaking at the same conference, Economist Intelligence Unit Asia global forecasting director Jan Friederich said that the Chinese government has a clear understanding of the dangers of a lending binge, but it would be able to take on all the bad debt that might be created, though there would be substantial market volatility this year because of worries over the phasing out of stimulus measures.
He also said that analysts have to be careful of extrapolating trends from short-term economic indicators, such as quarterly retail figures, as underlying growth factors are likely to fluctuate this year.
He added that while Asian countries must stay vigilant over the inflow of capital from the US owing to continuing expansionary monetary policy, China’s situation is slightly different as its liquidity is almost entirely domestically created rather than imported.
Friederich said that Asian economies showed exceptionally strong macro performance from the start of the recession, having learned the lessons of the 1997 financial crisis.
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