Wednesday, July 07, 2010

Abundant capital to fuel further growth - Victor Shih

victor shih Victor Shih via Flickr
China's commercial banks are stocking up to US$ 60 bn to fuel a next round of investments, tells financial expert professor Victor Shih in BusinessWeek. Earlier professor Shih of the NorthWestern University raised concern on how the country might funds its earlier spending extravaganza, but the recent recapitalization of banks might even allow new rounds of spending.
Banks involved include the ICBC, the Agricultural Bank of China, the Merchant Bank and the China CITIC bank.
Business Week:
Shih remains concerned about the risks posed by the credit boom, describing a National Audit Office report last month on local-government debt, as “pretty shocking.” In some cases borrowing was between 100 percent and 365 percent of governments’ available fiscal revenues, the office said.
New loans in June were 560 billion yuan, the 21st Century Business Herald reported today, citing an unidentified bank official. That would be 67 percent lower than a year earlier and the second-lowest figure this year. The central bank is due to announce the figure next week...
The government is relying on banks to support its industrial and economic policies. The National Development and Reform Commission, the top economic planning agency, said July 5 the nation is targeting 682 billion yuan of investment in 23 projects in western China this year including nuclear power stations, power grids, airports and railways.

“Credit expansion is the main monetary policy tool in China,” Shih said. “When the growth model is so dependent on investment, the government has to keep spending.”
 More in Business Week.

Commercial
Professor Victor Shih is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.
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