Home » Economic slowdown, bad debt surge?Bank of China cuts traditional loans | bill rediscount interest rate | bill interest rate | Chinese economy

Economic slowdown, bad debt surge?Bank of China cuts traditional loans | bill rediscount interest rate | bill interest rate | Chinese economy

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[Epoch Times January 05, 2022](Epoch Times reporter Wang Xiang comprehensive report) In December 2021, Bank of China chose to further purchase low-risk financial instruments instead of issuing loans in order to reach the annual credit allocation assessment target. Bankers and analysts say this surge in demand reflects financial institutions’ concerns about China’s economic slowdown.

Since December 2021, the bill discount rate has declined rapidly, especially in the second half of the month, when the bill discount rate fell to near zero. On December 23, the 1-month (1M) state-owned stock bank note rediscount rate reached the historical low of 0.0061%, and the 3-month and 6-month maturities also hit record lows.

The reason for the change in bill rediscount interest rates is that due to the epidemic and economic impact, the operating conditions of small, medium and micro enterprises, individual industrial and commercial households, etc. are still difficult, coupled with the tightening of real estate policies, the overall demand for financing is weak.

The bill rediscount rate is currently much lower than the Bank of China’s average cost of capital of 2.5% over the same period, which means that banks would rather lose money on low-yield bank acceptance bills than risk larger losses and issue their own loans at higher interest rates. .

“Financial Times” reported that Xi Jinping hopes that banks can provide more loans, especially to small and medium enterprises in the agriculture and new energy automobile industries favored by the government. But now banks are reluctant to do this because they believe that China’s economic slowdown has reduced the number of qualified borrowers.

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Loan officials said that increasing the scale of discounted bill purchases and reaching year-end loan quotas is the safest way to support the government’s policy goals.

An executive of Zhongyuan Bank in the central city of Zhengzhou, who asked not to be named, told the Financial Times: “Supporting the wider economy is a political task for which we cannot say’no’. Qualified corporate loans should be small.”

Loan officials said that Xi Jinping’s “regulatory purge” has hit many of their best borrowers in areas such as real estate and education and training, and there is no sign that conditions will improve anytime soon.

“The authorities want us to support the real economy while controlling bad debts,” said a loan official from Hangzhou Zheshang Bank who asked not to be named. “In the current business environment, this is difficult to achieve.”

Bo Zhuang, an analyst at the asset management company Loomis Sayles in Singapore, also added: “This is a problem that cannot be solved by the current policy mix.”

China’s total social financing (the broadest measure of credit supply) reported three consecutive double-digit year-on-year declines from July to September, reflecting the government’s efforts to defuse the real estate bubble by tightening mortgage lending.

The credit crunch pushed China Evergrande Group and other over-leveraged developers into default, stagnating the completion of condominiums funded by home buyers’ advance payments.

Central and local government officials have begun to worry that protests by dissatisfied home buyers, retail investors who purchase investment products issued by developers, and construction workers who have not received salaries may threaten social stability.

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This led to a moderate change in monetary policy. The Central Bank of the Communist Party of China announced a series of measures in December 2021, including cutting benchmark lending rates and reserve requirements, in order to inject liquidity into the real economy after months of tightening policies.

The CCP’s senior officials even shouted that “the house is for living, not for speculation” and restricting the “disorderly expansion of capital”. In addition, some large private real estate companies in China, such as Evergrande, are facing the problem of breaking the capital chain.

At the December year-end policy meeting, the top leaders of the Chinese Communist Party also emphasized the importance of stabilizing the economy before the 20th Party Congress this year. At this meeting, Xi Jinping is expected to receive his third term of office as the head of the party, military, and government.

Editor in charge: Ye Ziwei#

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