PBOC to Control Risks, Seek Appropriate Financing Growth - Bloomberg

http://www.bloomberg.com/news/print/2012-12-29/pboc-to-control-risks...

PBOC to Control Risks, Seek Appropriate Financing Growth

By Bloomberg News - Dec 29, 2012

Chinas central bank said it will focus on controlling risks in the financial system and will seek stable and appropriate growth in aggregate financing, a measure of funding that includes loans, stock and bond sales. The Peoples Bank of China also said it will stick to a prudent monetary policy next year and try to stabilize growth, rebalance the economy and contain inflation. The four-paragraph statement released late Dec. 28 after a quarterly meeting of the monetary policy committee, mostly reiterated the stance set out at a government work conference earlier this month. The PBOCs addition of controlling risks as a policy objective may signal growing concern that a surge in non-bank lending over the past two years will lead to defaults that could trigger social unrest. Citic Trust Co., a unit of Chinas biggest state-owned investment company, said on Dec. 21 that it missed a bi-annual payment to investors in one of its wealth management products after a steel company didnt make interest payments on the underlying loan. Regulators may tighten control on the quality and quantity of credit supply, particularly through non-bank channels such as trust loans in the first half of 2013, Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a note after the central bank report. A slowdown in credit growth would feed through to a moderation in economic expansion, he said. The central bank last year introduced aggregate financing as an indicator designed to capture broader funding sources in the economy, such money raised through trust investment products and bond and stock sales.

Reasonable Scale
The wording of stable and appropriate growth of aggregate financing in the PBOC statement differed from previous statements that referred to a reasonable scale of financing. Loans made outside the formal banking system, including funds raised through wealth management vehicles that offer higher interest rates than bank deposits, expanded at a faster pace than bank credit this year.

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PBOC to Control Risks, Seek Appropriate Financing Growth - Bloomberg

http://www.bloomberg.com/news/print/2012-12-29/pboc-to-control-risks...

Local currency bank loans accounted for 45.8 percent of aggregate financing in November, down from 58.8 percent in the same month last year, according to data compiled by Bloomberg. At the same time, the share of trust loans rose to 17.5 percent from 7.5 percent. Chinas central bank is in a very delicate situation, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. It wants more bank loans and greater financial support for economic growth next year, but it also has to keep a close eye on risks in the shadow banking system.

Wealth Management
Shadow banking in China refers to lending that isnt subject to the same regulation as bank loans and includes banks off-balance-sheet vehicles, such as commercial bills and entrusted loans, and wealth management products as well as underground lending by individuals. In its Dec. 28 statement, the central bank said it will use various tools to ensure steady and appropriate growth in credit and money supply and reiterated that it will push ahead with overhauling interest rates and the yuans exchange-rate system while keeping the currency basically stable. It omitted comments made in previous statements that it would increase the currencys two-way movement. Whether the PBOC explicitly said it or not, the trend toward a freer yuan exchange rate wont change, said Shen, who previously worked for the International Monetary Fund. The central bank said Chinas economy is stable and prices are basically stable, while the global economy remains relatively weak with lingering uncertainties. The statement is a summary of a meeting of the central banks monetary policy committee, an advisory body that includes academics and officials from ministries and government agencies. --Zhou Xin. With assistance from Zheng Lifei in Beijing and Helen Yuan in Shanghai. Editors: Nerys Avery, Paul Panckhurst To contact the reporter on this story: Xin Zhou in Beijing at xzhou68@bloomberg.net To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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