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How Henan Bank Scammers Weaponized the Language of Inclusive Finance

Rao Yichen wrote . . . . . . . . .

On April 18, five village and township banks in the central provinces of Henan and Anhui did the unthinkable: Claiming “system maintenance,” they abruptly blocked depositors from transferring or withdrawing their money from their accounts.

Overnight, tens of billions of yuan were effectively frozen; some 400,000 account holders in provinces and cities across the country were affected. One entrepreneur lost as much as 40 million yuan. A single mother’s life savings disappeared. Medical bills became unpayable. Those who gathered in Henan to protest saw their local health codes mysteriously turn “red” — indicating a positive COVID-19 test or close contact with a COVID-19 patient — preventing them from traveling or entering the bank premises to withdraw their money in person.

The scandal soon took on national proportions, and not just because of the abuse of the health code system. This wasn’t a fly-by-night operation: The five banks were fully accredited and had marketed fixed deposit products to consumers all over the country via established and trusted fintech platforms like JD.com’s JD Digits and Baidu’s Du Xiaoman Financial.

The possibility that even accounts in the formal banking system might be scams has shaken public faith in the country’s banking system. A police investigation pointed the finger at the chairman of the banks’ corporate parent, the Henan New Fortune Group, but many depositors are still waiting to see what percentage — if any — of their money can be recovered.

At the policy level, the incident has cast a pall over a cornerstone of China’s “inclusive finance” campaign. Village and township banks first emerged as a distinct class of banking institution in China in 2006. At the time, the country’s large, brand-name banks were generally only willing to lend to state-owned enterprises, firms contracted to build government infrastructure, or companies that could show the kind of rapid growth needed to keep up with banks’ own high interest rates. One of my research participants told me that, as late as 2005, a private chemical plant he worked for with an annual income of 700 million yuan (then about $85 million) struggled to obtain bank loans at reasonable interest rates.

Village and township banks were meant to help address these gaps. Based in rural areas, they offered basic services to residents of China’s vast and largely unbanked countryside. After a short, three-year pilot period, the scheme was fast-tracked. Over 200 village and township banks were established in 2010 alone; by late 2021, there were 1,651 registered village and township banks nationwide, accounting for 36% of all Chinese banking institutions.

In economically developed coastal provinces like Zhejiang, village and township bank performances were relatively strong, but the majority of the banks, especially those in less-developed parts of central or western China, struggled. Residents of these regions have significantly lower incomes than on the coast and there are fewer rural enterprises with which to do business. Unable to compete with the brand recognition of more established commercial banks, village and township banks generally attracted clients rejected by other institutions.

In the face of these difficulties, much of the foreign and state-owned capital that had initially backed village and township banks faded away, leaving private capital dominant in an increasingly messy, competitive market.

Nevertheless, village and township banks were made a central part of a 2015 plan by the State Council — China’s cabinet — to promote inclusive finance. The goal was to reach people and businesses the traditional bank credit business was unwilling to cover, such as small- and micro-enterprises, farmers, low-income urban residents, and the poor and disabled, thereby boosting social equity.

The reality proved far more complex. Village and township banks have had a hard time competing with larger state-owned commercial banks. To poach depositors away from established competitors, they must offer higher interest rates, but the only way to cover these outlays is to charge higher interest on loans, which costs them their best potential customers.

Around this time, some village and township banks saw a possibility of survival in another key inclusive finance initiative: online banking and financial technology platforms. It was the peak of the peer-to-peer (P2P) lending craze and online platforms were marketing themselves as “financial innovations” for facilitating loans to small-, medium-, and micro-enterprises.

Many village and township banks, facing growing competition and under pressure to meet the needs of the inclusive finance campaign, sought to cash in on the fintech boom to fund their operations. They partnered with online financial platforms, allowing them to use their financial services licenses — and the air of legitimacy the licenses provide — in exchange for the ability to market “online deposit” products to the platforms’ national user base.

The scheme was relatively simple: depositors would sign up for a special deposit account with a bank through a third-party platform. Their savings would then be transferred from their primary account — typically at a larger commercial bank — to a new account at a smaller institution like a village and township bank.

For depositors, the benefits were obvious. The smaller banks, hungry for deposits, offered high interest rates — typically over 4%, compared to less than 3% at larger banks — to anyone willing to park their savings in an account. There was little reason to see the accounts as risky: Although interest rates were higher than average, they were still far below those promised by the now defunct P2P industry. And the institutions were all accredited banks included in the country’s deposit insurance scheme.

Strictly speaking, village and township banks are not supposed to take in deposits or hand out loans outside their base of operations. Because they are overseen locally, if they encounter problems outside their jurisdiction, it can have ripple effects elsewhere. But online fintech platforms let them quietly market their products to users across China.

The result was a shadow banking system in which small village and township banks, meant to serve local residents, were attracting funds from a wide range of users all over the country, causing regulatory problems and greatly increasing the risk of a cascading crisis.

Even before the Henan case, the government recognized the problem and moved to rein in online deposits. For example, in late 2020, 10 platforms, including Alipay and JD Finance, were ordered to delist all online deposit products.

That village and township banks had been involved in the industry and were exposed to the risks was not a secret. In early 2021, banks were banned from offering long-term fixed deposit products on third-party financial platforms under a new regulatory policy. But at least some institutions found ways to skirt the new rules. Several of the banks implicated in the recent scandal launched self-developed apps targeting online “savers.”

To reassure clients, many village and township banks used misleading language to imply their services were government-backed or approved. High-risk loans were reframed as “inclusive finance”; high-interest financial products were packaged as ordinary and safe “deposits” that were securely insured. This public-facing language, which promised legitimacy and credibility, covered for the banks’ “hidden script”: a reckless pursuit of risky profits. It also lowered people’s natural skepticism of tech-related scams. In the Henan case, in which app users’ money was supposedly saved through a bank app designed to look official, even bank employees failed to realize that the money was being redirected.

As recently as a few months ago, village and township banks were hailed as innovators in the field of inclusive finance. That praise has dried up during the Henan crisis, but the risks remain. This isn’t China’s first case of bank-related malfeasance. Now that the alarm has sounded, regulators must seriously examine and address the deep-seated problems plaguing the country’s financial institutions. Otherwise, depositors will keep falling for the same old tricks.


Source : Sixth Tone

China Raises Loan-support Efforts for Developers Amid Mortgage Boycott

Chinese regulators stepped up efforts to encourage lenders to extend loans to qualified real estate projects as the beleaguered property sector faced fresh risks from a widening mortgage-payment boycott on unfinished houses.

The China Banking and Insurance Regulatory Commission (CBIRC) told the official industry newspaper on Sunday that banks should meet developers’ financing needs where reasonable.

The CBIRC expressed confidence that with concerted efforts, “all the difficulties and problems will be properly solved,” the China Banking and Insurance News reported.

The remarks come as a growing number of homebuyers across China threatened to stop making their mortgage payments for stalled property projects, aggravating a real estate crisis that has already hit the economy. read more

The latest news helped banking and property stocks recover some of their recent losses. China’s banking index, which tumbled 7% to a more than two-year low last week, bounced 1.4% on Monday. Chinese real estate stocks gained 3.1% on the mainland, and jumped 3.7% in Hong Kong.

The rebound in Chinese banking stocks was also aided by news that China will accelerate the issuance of special local government bonds to help supplement the capital of small banks, part of efforts to reduce risks in the sector.

China may also allow homeowners to temporarily halt mortgage payments on stalled property projects without incurring penalties, Bloomberg reported after the market close on Monday, citing people familiar with the matter.

The report added that homeowner eligibility and the length of grace periods would be decided by local governments and banks, and the yet-to-be-finalised proposal from financial regulators would require approval from senior Chinese leaders.

HOPING FOR STABILITY

Official data on Friday showed output in the property sector shrank 7% in the second quarter from a year earlier, marking the fourth straight quarter of decline.

New real estate loans in June were expected at more than 150 billion yuan ($22.23 billion), compared with a contraction in May, state television CCTV reported on Monday.

“I think the Chinese government has the will and means to solve the problem, and will likely take swift actions,” said Mark Dong, Hong Kong-based co-founder and general manager of Minority Asset Management.

“The biggest risk is impairment to consumer confidence, which threatens the nascent recovery in property sales.”

Dong expects state-owned developers to step in and acquire troubled projects from heavily-indebted private peers, accelerating an industry consolidation.

The CBIRC vowed last Thursday to strengthen its coordination with other regulators to “guarantee the delivery of homes”.

Already more than 200 projects have been affected by the mortgage boycott by homebuyers across the country, and at least 80 property developers are affected so far, E-house China Research and Development Institution said in a report published on Monday.

E-house estimated stalled real estate projects across China involve 900 billion yuan worth of mortgages in the first half, or 1.7% of the total outstanding mortgage loans.

In the Sunday interview, CBIRC urged banks to “shoulder social responsibility” and actively participate in the study of plans to fill the funding gap and support acquisitions of real estate projects.

The regulator hoped these steps would help stabilise the property market by enabling the swift resumption of stalled real estate construction and delivery of homes to buyers early.


Source : Reuters

How Long and Deep Is Inflation, and How Close Is China to a Banking Crisis?

Bill Blain wrote wrote . . . . . . . . .

“ All that glitters is not gold…”

This morning: The immediate threat is inflation – how could a strong CPI print destablise markets, but inflation is also a question of what shocks are still to come, and investing accordingly. What if a big No-see-Em shock is still to come – a Chinese financial crisis?

Markets are all about risk – What do we know, and what do we not? That’s easy – we know what we care to learn about the past, what we think we know about today, but about tomorrow we are just making informed guesses.

Today the big front and centre issue is inflation. Does it get worse or better, and for how long?

Take a look at any inflation chart and it will typically shows a series of sharp, short-lived spikes – which makes sense: something triggers inflation, it is addressed and the economy adapts, the price shock is normalised as the economy learns to cope with the new normal.

The immediate critical risk is another new shock; that a stronger than expected US CPI (inflation) report triggers major wobbles across markets by raising expectations of aggressive central banking rate tightening – that’s given some impetus by the comments of Bank of England governor Andrew Bailey who said :“bringing inflation down to the 2% target is our job, no ifs or buts”. The market expects a 50 bp Bank hike in early August – there is little else left in the Bank’s armoury.

The market is split on where the inflation threat goes from tomorrow:

  • There are naysayers who say trying to address the multiple inflation shocks now hitting global markets with recession inducing monetary tightening is just daft.
  • There are others who say it’s all the fault of the overly-easy monetary experimentation of artificially low-rates and QE of the last 14 years: inflation everywhere is a monetary phenomenon. (Inflation is very real and it has enormous socio-economic consequences.)
  • There are some market watchers who believe inflation already peaked, and June will mark a high for this inflationary spike as the economy successfully adapts and digests the Ukraine energy shock and the end of pandemic supply chain crisis. They argue there is significant resilience built in that will ease tensions.
  • There are others, including myself, who believe inflation could yet spike higher, and could remain persistently higher for longer than central bank dot-plots suggest. The energy crisis is not over – and could get substantially worse if Putin does not reopen the gas valves to Europe (currently closed for “maintenance”) later this month. Coronavirus lockdowns in China remain a threat to keep supply chains malfunctioning, and growing wage-inflation as industrial unrest ferments across Europe is going to hit hard in Q3/4 as recession bites.

What’s a fund manager to do? Inflation hurts earnings – as this current earnings season will no-doubt show. Interest rate rises will hit stock returns, balance sheets and prices. One argument is to buy stocks in the expectation the economy will adapt while strong fundamentals re-establish themselves.

On Monday there was a fascinating intervention on the inflation conundrum for asset managers from retired bond king Bill Gross – reminding us bonds diminish risk but lower returns.. “Jim Cramer famously says there’s always a bull market somewhere but I’m straining to find one now.” Gross goes on to say investors should mitigate the pain, accept its happening and “12 month Treasuries at 2.7% are better than your money market fund and any other alternatives!” He has a point – although others say this is time to buy duration to up the return to 3%!

On the other hand, maybe there is more pain to come? Maybe it will be Europe where Euro parity to the dollar is doing precious little to boost economies heading into a new recession, where energy security is perilous, and politics looks a-dither.

And, there are growing signs all is not well in China..

There is a widely held view Paramount Leader Chairman Xi feels so secure, and the distracted west looks so riven, it’s time for a quick operation to seize Taiwan. Maybe not – the Chinese, who share tactical doctrines with the now discredited Russian steamroller, look embarrassed by its shortcomings. For all its’ military posturing and new weapons, the Chinese are not an “outward bound” empire – historically, they prefer to internalise. The spectacular growth of China over the last 30 years has come from the internal control and expansion of its domestic economy, initially through exports and now through domestic consumption.

That’s bound to have created internal tensions – which can be seen in terms of inequality, environmental damage, and the limitations on internal freedoms – all of which we know..

But, over the last 2 years of Covid, China has effectively sequestered itself from the global economy. We think we understand how it works, but in reality… do we? Look at how dramatically and swiftly Hong Kong has been spun from being the premier western entrepot into a kow-towing domestic city.

China is big and it matters. It is like and unlike the west. It has multiple growth problems and demographics that will trigger whole new issues the West has yet to adapt to. The Covid lockdowns, understanding of the Party and government, and now bursting economic bubbles and what looks like a developing banking crisis – I’m beginning to wonder if the Middle Kingdom is more trouble than we think? If so it will have enormous global consequences – it could be a massive No-See-Um that could destabilise the global economy.

I’ve been reading up on the Chinese Banking riots in Henan Province. The fact Chinese protestors wanting money back from local banks following a run were set upon is hardly unusual – the immediate suspicion is corrupt local politicians were protecting themselves. But there are two aspects to the story to consider:

The first is Chinese Surveillance Capitalism: clamping down on reporting, using unidentified security personal to beat up and break up protestors, and local officials manipulating Covid “personal health codes” to ping protestors as likely Covid carriers takes state-control to a new level. Observers are not surprised – they saw the mandatory health codes as a way in which Government could control the masses. If surveillance capitalism is so established – why is party corruption still such an issue?

The second is the scale of the domestic banking problem. Is it really just a local, one province problem? What are we not seeing? Could it be the whole Chinese banking system is teetering?

The official line is it’s a local banking problem caused by criminality, presenting the line “local gangsters” have been systematically looting some small banks after “capturing” them up to a decade ago – which sounds like bad regulation and incompetent bank inspection. But runs on banks and lines of people asking for their money back is very 2007.

I am convinced much of the UK banking crisis following the run on Northern Rock that year would have been avoided if the Bank of England had stepped in to provide liquidity earlier. It was when the plentiful liquidity that supported bank property and corporate lending suddenly dried up as it became clear just how unbalanced that lending was that the global financial crisis was triggered.

Let me ask a rhetorical question: Is it possible China’s well known hot property bubble, it’s corporate borrowing binge, plus the high degree of corruption within the system, is fuelling a very real banking crisis in China? Is China about to suffer its’ very own internalised version of the Global Financial Crisis of 2008? How much worse will it be made by the ongoing Covid bogey being used to keep the economy under control? Are Covid Lockdowns being used to disguise the scale of a massive Chinese financial crisis?

Just asking…


Source : Morning Porridge

More Chinese Homebuyers Refuse to Pay Mortgage Loans Amid Contagion Fears

A rapidly increasing number of disgruntled Chinese homebuyers are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system.

Homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, according to researcher China Real Estate Information Corp. That’s up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

“The names on the list doubled every day in the past three days,” Chen wrote in a note published Thursday. “The incident would dampen buyer sentiment, especially for presold products offered by private developers given the higher risk on delivery, and weigh on the gradual sales recovery.”

The delayed projects make up about 1% of China’s total mortgage balance, according to Jefferies. Should every buyer default, that would lead to a 388 billion yuan ($58 billion) increase in non-performing loans, Chen said. The report didn’t give any estimate for how many buyers are snubbing repayments.

Some major Chinese banks rushed to respond during trading hours on Thursday as the CSI 300 Banks Index fell as much as 3.3%. State-owned Agricultural Bank of China Ltd. said it held 660 million yuan of overdue loans on unfinished homes, while smaller rival Industrial Bank Co. said 1.6 billion yuan of mortgages were impacted, of which 384 million yuan have become delinquent. China Construction Bank Corp., the nation’s largest mortgage lender, said overall risks are controllable as its exposure to delayed projects is small.

The payment refusals underscore how the storm engulfing China’s property sector is now affecting hundreds of thousands of average citizens, posing a threat to social stability ahead of a Communist Party Congress later this year. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults. A Bloomberg Intelligence index of Chinese developer stocks slid as much as 2.7%.

Analysts believe that a drop in home values may be another driver for the refusal to meet mortgage payments. “Investors are concerned about the spread of mortgage payment snubs to buyers, simply due to lower property prices, and the impact on property sales,” Chen wrote.

Average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years, Citigroup Inc. analysts said in a note on Wednesday. China’s home prices fell for a ninth month in May, with June figures set for release Friday.

The crisis engulfing Chinese developers is reaching a new phase, with a debt selloff expanding to firms once deemed safe from the cash crunch, including Country Garden Holdings Co., the largest builder by sales.

While rising non-performing loans for Chinese banks are “manageable” for now, “more risk events are likely to come, at the backdrop of China’s growth slowdown, residents’ expectation of worse future income, and shrinking property sales,” affecting China’s social stability, Jefferies’s Chen said.

Presale Risks

Nomura Holdings Inc. analysts said the refusal to pay mortgages stems from the widespread practice in China of selling homes before they’re built. Confidence that projects will be completed has weakened as developers’ cash woes intensified.

Even before the crisis, developers only delivered around 60% of homes they presold between 2013 and 2020, while outstanding mortgage loans rose by 26.3 trillion yuan, Nomura analysts including Ting Lu wrote in a note Wednesday.

“Presales carry mounting risks for developers, homebuyers, the financial system and the macro economy,” Lu wrote. Failure to build homes on time reduces households’ willingness to buy new properties, and rising raw material prices may mean funds from presales are insufficient to construct them.

“We are especially concerned about the financial impact of the homebuyers’ ‘stopping mortgage repayments’ movement,” Ting wrote. “China’s property downturn may finally adversely affect onshore financial institutions after hitting the offshore high-yield dollar bond market.”


Source : Bloomberg


Read Also

Homebuyers in Multiple Cities Go on Mortgage Strike Over Delayed Projects . . . . .

Banking Body Urges Decisive Wave of Global Rate Hikes to Stem Inflation

Marc Jones wrote . . . . . . . . .

The world’s central bank umbrella body, the Bank for International Settlements (BIS), has called for interest rates to be raised “quickly and decisively” to prevent the surge in inflation turning into something even more problematic.

The Swiss-based BIS has held its annual meeting in recent days, where top central bankers met to discuss their current difficulties and one of the most turbulent starts to a year ever for global financial markets.

Surging energy and food prices mean inflation in many places is now its hottest in decades. But the usual remedy of ramping up interest rates is raising the spectre of recession, and even of the dreaded 1970s-style “stagflation”, where rising prices are coupled with low or negative economic growth.

“The key for central banks is to act quickly and decisively before inflation becomes entrenched,” Agustín Carstens, BIS general manager, said as part of the body’s post-meeting annual report published on Sunday.

Carstens, former head of Mexico’s central bank, said the emphasis was to act in “quarters to come”. The BIS thinks an economic soft landing – where rates rise without triggering recessions – is still possible, but accepts it is a difficult situation.

“A lot of it will depend on precisely on how permanent these (inflationary) shocks are,” Carstens said, adding that the response of financial markets would also be crucial.

“If this tightening generates massive losses, generates massive asset corrections, and that contaminates consumption, investment and employment – of course, that is a more difficult scenario.”

World markets are already suffering one of the biggest sell-offs in recent memory as heavyweight central banks like the U.S. Federal Reserve – and from next month the ECB – move away from record low rates and almost 15 years of back-to-back stimulus measures.

Global stocks are down 20% since January and some analysts calculate that U.S. Treasury bonds, the benchmark of world borrowing markets, could be having their biggest losing first half of a year since 1788.

CREDIBILITY

Carstens said the BIS’s own recent warnings about frothy asset prices meant the current correction was “not necessarily a complete surprise”. That there hadn’t been “major market disruptions” so far was also reassuring, he added.

Part of the BIS report published already last week said that the recent implosions in the cryptocurrency markets were an indication that long-warned-about dangers of decentralised digital money were now materialising.

Those collapses aren’t expected to cause a systemic crisis in the way that bad loans triggered the global financial crash. But Carstens stressed losses would be sizeable and that the opaque nature of the crypto universe fed uncertainty.

Returning to the macro economic picture, he added that the BIS didn’t currently expect a period of widespread stagflation to take hold.

He also said that though many global central banks and the BIS itself had significantly underestimated how quick global inflation has spiralled over the last six to 12 months, they weren’t about to lose hard-earned credibility overnight.

“Yes, you can argue a little bit here about an error of timing of certain actions and the responses of the central banks. But by and large, I think that the central banks have responded forcefully in a very agile fashion,” Carstens said.

“My sense is that central banks will prevail at the end of the day, and that would be good for their credibility.”


Source : Reuters

Chart: Switzerland Bond Yield Surges As Central Bank Raised Rate

Source : Bloomberg

Chinese Households Are Bracing for a Downturn by Saving More This Year

Jane Li wrote . . . . . . . . .

China’s citizens, who already have a reputation of being savvy savers, are saving even more amid uncertain economic prospects.

Chinese household savings grew by 7.86 trillion yuan ($1.2 trillion) between January and May, an increase of more than 50% from the same period last year, according to China’s central bank. In May alone, renminbi savings accounts in China added 3.04 trillion yuan, which was 475 billion yuan more than the same month last year, said the bank.

The explosion of savings in the first five months of this year was also affected by other factors: people depositing their year-end bonuses, and lockdowns in several cities hindering their ability to spend. But the fast growth of savings also reflects a smaller appetite for risk. In a telling sign, during the first five months of 2020, when the pandemic was ravaging the country, China’s household savings grew by 6 trillion yuan, lower than the amount seen this year. People are growing increasingly risk-averse, as China’s prolonged lockdowns combined with the Russian invasion of Ukraine and corresponding high oil prices feed worries about imminent recessions.

Chinese consumers are anxious about the future of their economy

“The pandemic situation in both 2020 and 2022 has led to big increases in household savings rate,” Shanwen Gao, the chief economist of Essence Securities, wrote in a note (link in Chinese) in May. “Part of this comes from an increase in unwilling savings, as the pandemic hinders consumption; the other part meanwhile comes from a rise in precautionary savings, which reflects residents’ concerns about uncertainty.” Gao thinks that the surge in savings this year, amid the new waves of covid-19, has been channeled into deposits, fixed income, and debt reduction, where citizens use savings to repay their liabilities and pre-pay mortgages. In contrast, in early 2020, people directed their savings into stock and property markets “This reflects the shaken confidence of residents in job security and future income,” Gao wrote.

Despite recovering from the pandemic relatively quickly in the past two years, China’s insistence on a zero-covid policy has damaged its economy deeply. On-and-off lockdowns in major cities including Shanghai have hindered business operations and shattered consumer confidence, while rising unemployment rates and mass layoffs in the once red-hot tech sector are also leading to more pessimism among citizens. Meanwhile, two-thirds of China’s 70 major cities saw their new home prices drop in April, compared with 38 cities in March, pointing to further danger of shrinking wealth of Chinese families, which count property as a major asset.

Naturally, without any clear deadline for zero-covid measures from the Chinese government, people are holding tight to their wallets. A rising propensity to save could mean that China’s already sluggish consumption, which saw retail sales plunge by 11% in April, will slow further for the rest of the year. Despite many cities’ recent embrace of using consumption vouchers and digital yuan subsidies to spur spending, these measures are seen by experts as far from being enough, as the hand outs only account for around 0.01% of some city’s GDP.


Source : QUARTZ

China New Bank Loans Nearly Triple in May as Beijing Steps Up Policy Support


See large image . . . . . .

New bank lending in China jumped far more than expected in May and broader credit growth also quickened, as policymakers try to pull the world’s second-largest economy out of a sharp, COVID-induced slump.

Chinese banks extended 1.89 trillion yuan ($282.62 billion) in new yuan loans in May, nearly tripling April’s tally and handily beating expectations, data released by the People’s Bank of China on Friday.

Analysts polled by Reuters had predicted new yuan loans would surge to 1.3 trillion yuan in May from 645.4 billion yuan in April and against 1.5 trillion yuan a year earlier.

“Credit growth was stronger than expected last month and is likely to accelerate further following the clear signal in late May that policymakers want banks to step up lending,” Capital Economics said in a note.

“More policy easing is likely. But private sector credit demand is likely to remain subdued while, on current budgetary plans, local government borrowing is about to slow. A dramatic increase in credit growth still seems unlikely.”

New household loans, including mortgages, rose to 288.8 billion yuan in May, after contracting 217 billion yuan in April, while new corporate loans soared to 1.53 trillion yuan in May from 578.4 billion yuan in April.

However, 38% of the new monthly loans were in the form of short-term bill financing, which was down from 80% in April but still higher than 10% in the first quarter, suggesting real credit demand remains weak.

Chinese policymakers have recently stepped up support for the slowing economy as Shanghai and other cities ease tough COVID-19 lockdowns following a drop in new infections.

The cabinet announced a package of policy steps last month, including broader tax credit rebates and postponing social security payments and loan repayments to support businesses.

Local media also reported last month that financial authorities had told commercial banks to speed up lending.

In May, the central bank cut its benchmark reference rate for mortgages by an unexpectedly wide margin, its second reduction this year, in a bid to turn around the contracting housing market, a key economic growth driver.

But analysts say both banks and potential borrowers remain cautious in case there are further virus disruptions.

After discovering a handful of new cases, China’s commercial hub of Shanghai will lock down millions of people for mass COVID-19 testing this weekend – just 10 days after lifting a grueling two-month lockdown – unsettling residents and raising concerns about a fresh blow to businesses.

MORE POLICY EASING UNDERWAY

Premier Li Keqiang has vowed to achieve positive economic growth in the second quarter, although many private sector economists have penciled in a contraction.

China will increase the credit quota for policy banks by 800 billion yuan ($120 billion) for them to support infrastructure construction, state television CCTV quoted a cabinet meeting as saying.

Broad M2 money supply grew 11.1% from a year earlier, central bank data showed, above estimates of 10.4% forecast in the Reuters poll. M2 grew 10.5% in April from a year ago.

Outstanding yuan loans grew 11.0% in May from a year earlier compared with 10.9% growth in April. Analysts had expected 10.7% growth.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 10.5% in May from 10.2% in April.

Chinese provinces are racing to issue hundreds of billions of dollars worth of special bonds in June, frontloading investment to revive the slowing economy.

Analysts and policy insiders expect China to issue special treasury bonds later this year, to maintain a steady stream of funding.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In May, TSF jumped to 2.79 trillion yuan from 910.2 billion yuan in April. Analysts polled by Reuters had expected May TSF of 2.02 trillion yuan.


Source : Financial Post

Eurozone Interest Rates Set to Rise for First Time in 11 Years

The European Central Bank (ECB) has said it intends to raise interest rates for the first time in more than 11 years next month as it tries to control soaring inflation in the eurozone.

The ECB said it would raise its key interest rates by 0.25% in July, with further increases planned for later in the year.

The bank also intends to end its bond-buying stimulus programme on 1 July.

The latest eurozone inflation estimate was 8.1%, well above the ECB’s target.

“High inflation is a major challenge for all of us. The [ECB] governing council will make sure that inflation returns to its 2% target over the medium term,” the ECB said in a statement.

“It is not just a step, it is a journey,” ECB President Christine Lagarde said of the moves.

The ECB’s main policy interest rate is currently at -0.50% and it could be back at zero or above by the end of September, the bank said. The last time it raised interest rates in the eurozone was in 2011.

Inflation in May “again rose significantly” as energy and food prices surged, it added.

But it said inflationary pressures had “broadened and intensified, with prices for many goods and services increasing strongly”.

As a result, the bank has upped its estimate for annual inflation this year to 6.8%, before slowing to 3.5% in 2023 and 2.1% in 2024.

The ECB also cut its growth forecast for the eurozone from 3.7% to 2.8% for 2022, and from 2.8% to 2.1% for 2023.

Several other central banks have already started raising interest rates as they try to slow inflation that has been accelerating amid surging energy costs.

In the US, the Federal Reserve has now raised rates twice this year, while a series of moves by the Bank of England has now lifted UK rates to 1% – the highest level for 13 years.

Speaking at a news conference after the ECB’s decision, the bank’s president, Christine Lagarde, said inflation would remain “undesirably elevated for some time”.

Energy prices are up nearly 40% from a year earlier, she said, while food prices rose 7.5% in May, partly due to the impact of the war in Ukraine on food supplies.

“Do we expect that the July interest rate hike will have an immediate impact on inflation? The answer is no,” she said.

Seema Shah, chief strategist at Principal Global Investors, said: “With this inflation outlook and the unavoidable path for higher rates, the ECB is facing stagflation threats full-frontal.

“The strangling hold of desperately high living costs means that euro area growth will slow through the second half of this year, with recession increasingly likely – particularly now with sharp policy tightening in the near-term horizon.”


Source : BBC

Chart: Australia Central Bank Hiked Rate by 50 Points

The expected rate hike is 25 points.

Source : Bloomberg