Money market rates with longer maturities remain higher before the money market stress that started in June, which emphasized that China could be facing de facto tighter monetary conditions if money market rates did not decline further. Credit premiums in the interbank market have also closed to normalized levels after briefly spiking in June, and are certainly out of stress territory. So far, it does not appear that the market perceive a marked higher default risk at least for the banks in the interbank market.
Credit expansion slowed markedly in June with particularly non-bank sources (shadow-financing) of credit drying up substantially. This trend was already evident in May, suggesting that the government's regulatory tigtening targeting shadow finance and local goverment lending could be an important driver. The sharp drop of new credit suggests a negative macroeconomic impact from the the liquidity crunch in June, but it remains uncertain to what degree credit growth will recover in July. The sharp decline in corporate bond issuance in June could particulalrly prove temporary. We expect slower credit growth to weigh on growth in H2 13.
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Monitor: The Chinese Credit Crunch
Published 07/16/2013, 07:18 AM
Updated 05/14/2017, 06:45 AM
Monitor: The Chinese Credit Crunch
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