Bank of China (BOC) plans to sell up to 40 billion yuan (US$5.8 billion) in bonds to replenish its capital and meet government standards following a record surge in lending last year amid Beijing’s stimulus measures, a state-run news agency reported.
Regulators have warned some banks that they have fallen below minimum capital requirements after handing out some 9.5 trillion yuan in loans last year. Banks are expected to scale back lending to roughly 7.5 trillion yuan this year.
Beijing hopes cooling the pace of lending will keep its economy growing without creating inflation and overheating. Other countries are counting on that growth and a healthy demand from China for their goods for their own recoveries.
Record bank lending last year to support government spending on infrastructure and other projects under Beijing’s stimulus package has led to fears of asset bubbles and huge bank losses if too many loans sour.
The prospects for a fiscal tightening have increased following the release on Thursday of data showing the world’s third-largest economy expanded by 8.7 percent last year and 10.7 percent in the fourth quarter, analysts said.
The fastest quarterly growth rate in two years and the biggest rise in inflation in 13 months has increased the chances of further tightening measures as Beijing seeks to maintain steady economic growth, analysts said.
“We expect inflation to continue rising throughout this year, with additional tightening steps including rate hikes,” Citigroup economists Ken Peng (彭墾) and Shen Minggao (沈明高) said in a research report.
Beijing has already moved this month to calm growing inflationary pressures and the threat of asset bubbles caused by soaring bank lending, which last year nearly doubled from 2008.
The People’s Bank of China on Thursday raised the interest rate on its benchmark three-month treasury bills for the second time in two weeks in a bid to deter new lending.
It followed an earlier move on its benchmark one-year treasury bills.
Chinese banks have been ordered to increase their capital reserves — effectively limiting the amount of money they can lend out — amid mounting fears over bad debts as consumers go on a spending spree on property and cars.
As economic growth heats up, analysts said they expect policymakers to push reserve ratios even higher and further increase rates on treasury bills before resorting to more aggressive measures such as hiking interest rates.
“We look for a minor acceleration in quantitative tightening through lending restrictions and raising the reserve requirement ratio,” said Credit Suisse research analyst Tao Dong (陶冬).
Interest rates would likely stay on hold until inflation went above three percent or the US Federal Reserve raised its own rates, Tao said.
Raising rates before the US does so may encourage investors to buy the relatively higher-yielding yuan-denominated assets, exacerbating inflation and putting pressure on the yuan to appreciate. China’s consumer price index rose 1.9 percent year-on-year last month and analysts expect full-year inflation to exceed 3 percent this year.
Moody’s Economy.com associate economist Alaistair Chan (陳志雄) said rumors of an imminent interest rate hike were likely to prove unfounded.
“While this is possible, it seems a much more dramatic step than the government is willing to take,” he said.
But Chan said he expected to see further tightening measures.
“These include even higher bill yields, increased bill auctions, higher capital reserve ratios, and public and private discouragement of bank lending,” he said.
“An increase in interest rates is still expected to happen, but mid-2010 at the earliest,” Chan said.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique