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.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2