Chinese regulators have told their banks that they will have to make plans to raise capital or they may face restrictions on lending. Bank lending, which rose by an unprecedented $1.3 trillion (£785bn) in the first nine months of the year, was the main source of an emergency stimulus deployed by Beijing in 2009. But the lending spree is now worrying the government.
The surge in new loans has resulted in the banks’ core capital adequacy ratios plunging from just 10% last year to 8.8%, a record rate of decline, according to Credit Suisse.
What the commentators said
The news that Chinese banks may have to raise capital wiped more than 4% off the Chinese stock market, said Charles Dumas of Lombard Street Research. No wonder. With loan growth now set to slow, this is the first sign that the authorities are beginning to apply the brakes to the huge stimulus programme.
Moreover, growth is above trend and the economy is beginning to overheat, heralding monetary tightening early next year. That has global implications because “with China’s recovery as the leading force in the world’s recovery, this would mark the end of the stock market, and general risk asset, rebound from last winter’s lows”.
The markets’ idea that China can be “the main engine of global growth” is misguided in any case, said Nouriel Roubini of New York University. China’s GDP is $3 trillion, compared to the G3’s $40 trillion, and US consumption is ten times Chinese levels. “It’s just not enough.”