China Bad Loans Jump Most Since 2005 as Economy Cools

[Ray]

China Bad Loans Jump Most Since 2005 as Economy Cools

China's bad loans jumped by the most since 2005 in the third quarter, fueling concern that a cooling economy will be further weakened as banks limit lending to avoid credit risks.

Nonperforming loans rose by 72.5 billion yuan ($11.8 billion) from the previous quarter to 766.9 billion yuan, the China Banking Regulatory Commission said in a statement on Nov. 15. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier.

As China heads for the weakest economic expansion since 1990, Communist Party leaders have discussed lowering the nation's growth target for 2015, according to a person with knowledge of their talks. Bankers' low appetite for risk and their rising concerns about asset quality are leading to a "sluggish" expansion in credit, according to UBS AG.

"We are still suffering from the aftermath of the credit binge and massive stimulus measures put in place in 2008," said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. "Banks have accelerated recognition of their bad loans in the last two quarters so that they could start the clean-up process."

Still, the pace of debt souring may have reached its peak, Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, said in a note today. He estimated that nonperforming loans at Hong Kong-listed banks will probably increase by 18 percent in 2015, slowing from an estimated 31 percent gain in 2014.

Shares Drop

Industrial & Commercial Bank of China Ltd., the nation's largest lender, fell 1.1 percent to HK$5.05 as of 10:20 a.m. Hong Kong time. China Construction Bank Corp., Agricultural Bank of China Ltd. (3988) and Bank of China Ltd. also dropped at least 1 percent.

Shares of lenders led by Beijing-based Bank of China and China Minsheng Banking Corp. may rise as much as 20 percent by January as the government eases policies and as a trading link between Hong Kong and Shanghai's stock exchanges debuts today, Antos said.

Aggregate financing, the nation's broadest measure of credit, missed analysts' estimates in October and growth in factory output cooled.

While new lending was "solid," banks are cautious and demand for credit is "frail" because of a property downturn, UBS economists including Donna Kwok and Wang Tao wrote in a note dated Nov. 14. They see economic weakness triggering cuts in benchmark interest rates from early next year.

Lower Targets

Party leaders have discussed lowering the 2015 growth target from this year's 7.5 percent goal, the person with knowledge of their talks said last week. Gross domestic product will rise 7.4 percent this year, according to the median of analysts' estimates in a Bloomberg News survey.

Chinese banks' combined net income rose 12.7 percent to 1.26 trillion yuan in the first nine months from a year earlier, the CBRC data showed.

Weakness in the economy and extra competition for lenders because of financial deregulation may weigh on banks' profitability. ICBC, the world's largest lender by assets, last month reported its biggest quarterly jump in bad loans since at least 2006.

Stresses in the economy are visible through companies such as Sinosteel Corp., a state-owned miner and steel trader that in September reported financial difficulties.

So-called special-mention loans, or those that may have already become overdue and are yet to be categorized as nonperforming, rose 12 percent in the third quarter to 1.8 trillion yuan as of Sept. 30, according to the CBRC.

Lenders' bad-loan coverage ratio, a measure of reserves for soured credit, narrowed to 247.2 percent from 262.9 percent in June, the CBRC data showed. Their capital adequacy ratio, a measure of financial strength, increased to 12.9 percent from 12.4 percent three months earlier.
China Bad Loans Jump Most Since 2005 as Economy Cools - Bloomberg

Bad loans in a climate of the economy cooling is surely not good news for China.

The high expectation of great targets have now taken a nose dive. Pragmatism has forced China to revise the targets and lower them substantially.

While this may not help China, how will it affect the rest of the world?

 

[sorcerer]

I suppose there is a talk about a stimulus package for China's economy, if that doesnt work it will inevitably hit the industries, which wont be able to sustain the 'magic in numbers' strategy at lowest price and compete at the same time.
These could be the sideeffects of the unchecked boom.

 

[sorcerer]

China factory growth stalls, at six-month low - HSBC flash PMI

(Reuters) - Growth in China's vast factory sector stalled in November, with output contracting for the first time in six months, a private survey showed on Thursday, adding to signs that the economy may still be losing traction.

The reading is the latest in a string of weak figures in recent weeks, strengthening the case for more stimulus to avert a sharper slowdown in the world's second-largest economy.

Hurt by a cooling property sector, erratic foreign demand and slackening domestic investment growth, China's economy is seen posting its weakest annual growth in 24 years this year at 7.4 percent.

The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to a six-month low of 50.0 from a final reading of 50.4 in October and well below the 50.3 forecast by analysts.

A reading above 50 indicates expansion, while one below 50 points to contraction on a monthly basis.

"We are still expecting 7.1 percent growth for the fourth quarter," said Shen Minggao, an economist at Citi.

"The economy is still under downward pressure and we expect three rate cuts from now until the middle of next year," said Shen, who expected interest rates to be cut by 25 basis points each time.

To re-energise the economy, the government has rolled out a steady stream of stimulus since April that has put a floor beneath flagging growth. The ailing property market, for example, is showing some tentative signs of possibly bottoming out, though it may remain weak well into 2015.

But with large sections of the economy still listless, many analysts expect more policy support in coming months.

Some expect authorities to quietly increase money supply by giving banks more discounted loans, while others including economists at state think-tanks believe the government could act more aggressively by cutting rates before the year-end.

"Disinflationary pressures remain strong and the labour market showed further signs of weakening," said Hongbin Qu, chief China economist at HSBC.

"We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed."

Thursday's PMI showed overall new orders picked up slightly but new export orders slowed markedly, dragging on activity. The factory output sub-index fell to 49.5, the first contraction since May.

Employment also shrank slightly last month, with a sub-index for jobs falling to 48.4 from October's 48.9. Senior Chinese leaders including Premier Li Keqiang have said that keeping the labour market healthy is a crucial policy priority.

In a sign that activity could stay sluggish next year, the country's top economic planner said on Wednesday that the economy faces increasing downward pressure in 2015, while the cabinet promised to help lower funding costs by giving banks more flexibility to lend.

(1 US dollar = 6.1190 Chinese yuan)

 

[sorcerer]

China factory growth stalls, at six-month low - HSBC flash PMI

(Reuters) - Growth in China's vast factory sector stalled in November, with output contracting for the first time in six months, a private survey showed on Thursday, adding to signs that the economy may still be losing traction.

The reading is the latest in a string of weak figures in recent weeks, strengthening the case for more stimulus to avert a sharper slowdown in the world's second-largest economy.

Hurt by a cooling property sector, erratic foreign demand and slackening domestic investment growth, China's economy is seen posting its weakest annual growth in 24 years this year at 7.4 percent.

The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to a six-month low of 50.0 from a final reading of 50.4 in October and well below the 50.3 forecast by analysts.

A reading above 50 indicates expansion, while one below 50 points to contraction on a monthly basis.

"We are still expecting 7.1 percent growth for the fourth quarter," said Shen Minggao, an economist at Citi.

"The economy is still under downward pressure and we expect three rate cuts from now until the middle of next year," said Shen, who expected interest rates to be cut by 25 basis points each time.

To re-energise the economy, the government has rolled out a steady stream of stimulus since April that has put a floor beneath flagging growth. The ailing property market, for example, is showing some tentative signs of possibly bottoming out, though it may remain weak well into 2015.

But with large sections of the economy still listless, many analysts expect more policy support in coming months.

Some expect authorities to quietly increase money supply by giving banks more discounted loans, while others including economists at state think-tanks believe the government could act more aggressively by cutting rates before the year-end.

"Disinflationary pressures remain strong and the labour market showed further signs of weakening," said Hongbin Qu, chief China economist at HSBC.

"We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed."

Thursday's PMI showed overall new orders picked up slightly but new export orders slowed markedly, dragging on activity. The factory output sub-index fell to 49.5, the first contraction since May.

Employment also shrank slightly last month, with a sub-index for jobs falling to 48.4 from October's 48.9. Senior Chinese leaders including Premier Li Keqiang have said that keeping the labour market healthy is a crucial policy priority.

In a sign that activity could stay sluggish next year, the country's top economic planner said on Wednesday that the economy faces increasing downward pressure in 2015, while the cabinet promised to help lower funding costs by giving banks more flexibility to lend.

(1 US dollar = 6.1190 Chinese yuan)