China Banks Continuing to Limit Loans

More news out of China today concerning commercial lending; China's banking regulator has told commercial lenders to restrict new lending they provide to local governments' financing arms to ward off potential risks of default. Although this is limited in scope it marks another example of how China is cracking down on lending to help prevent the event of an asset pricing bubble.

The China Banking Regulatory Commission (CBRC) ordered banks to inspect their existing loans to companies used by local governments to raise funds, and to stop lending to those projects that are backed only by expected fiscal revenues. The CBRC this year has also ordered banks to check that their loans are not flowing into property or stock market speculation.

All of these coming after Chinese central banks have twice raised the required reserve ratios in recent months. With property prices’ rising at an unhealthy rate the government has tried to curb speculation and other practices which will artificially drive up property prices.

Two orders from the CBRC, “Banks must not lend too aggressively and must verify that their loans are being used for the intended purpose.”

China continues to implement restrictions on lending and we will have to see if these restrictions pay off in the next few years