By Aileen Wang and Kevin Yao
BEIJING Nov 12 Comments by China's two top
banking officials playing down the risks of bad debt in the
banking system provided the latest upbeat signal from Beijing
suggesting seven straight quarters of slowing growth have ended.
Markets will be looking for the remarks, from Central bank
governor Zhou Xiaochuan and bank regulator Shang Fulin on Sunday
on the sidelines of a congress to anoint a new leadership, to be
backed up in coming days by solid lending data.
If so, that will close out a series of reports that have
raised market expectations the worst is over for the world's
second-biggest economy, although analysts say longer term
China's new leadership will have to push reforms to ensure the
country meets the goal outlined by outgoing President Hu Jintao
to double 2010 GDP by 2020.
"Right now, bank profitability is relatively strong and they
have conditions to increase provisions for loan losses and write
off some bad loans to prevent future risks," Shang, chairman of
the China Banking Regulatory Commission, told a news conference.
Bank lending data has become China's most closely-watched
economic statistic in recent months as investors try to judge
the likely pace of new investment projects Beijing is approving
to prop-up growth in what is the world's fastest expanding major
economy even if it is on course for its slowest year since 1999.
A pick up in growth from China would provide welcome news in
the West, where industrialised economies are struggling
following the debts built up during the global financial crisis.
Japan on Monday said its economy shrank in the third quarter and
the euro zone is widely seen as in recession.
The exposure of banks to high risk ventures, particularly in
the property sector and outside regular lending channels in
off-balance sheet "shadow banking" transactions, have gnawed at
investors and worried ratings agencies.
Shadow banking in the United States focused on property has
been widely blamed for triggering the global financial crisis.
Zhou, head of the People's Bank of China (PBOC), said he had
noticed that China's shadow banking risks had become a topic of
discussion, particularly overseas, but played down the risks.
"The nature and scale of our shadow banking system is
different from those in the western countries and the problem
and scale of our banking system is much smaller than theirs,"
A report by Orient Asset Management Corp - one of four firms
charged with cleaning up bad debts at China's banks - was cited
by official media last week as saying bad debts could triple by
the end of this year to 3 percent, but that would still leave
them safely below international norms.
While Shang says the banking system does not face a systemic
risk of bad debt, in comments on Thursday he identified loans to
local government financing vehicles as an area of concern.
"We are tightly controlling new loans and will ensure no new
loans to the sector," he said on Thursday.
Local government debt has been a dark cloud hanging over
China's public finances since it was revealed that local
authorities had racked up 10.7 trillion yuan ($1.7 trillion) of
loans by the end of 2010.
The borrowing binge was triggered by the spending demands in
Beijing's 4 trillion yuan ($640 billion) stimulus programme
launched in 2008 at the depths of the global financial crisis.
China is set to publish bank lending data for October in the
week ahead, with economists polled by Reuters forecasting net
new loans of 600 billion yuan ($96 billion).
Those numbers could provide another piece of evidence to
reinforce growing views that China's economy is turning up. The
head of the country's powerful planning agency said on Saturday
this year's 7.5 percent growth target would be beaten.
Statistics on Saturday showed China's trade surplus
ballooned to its biggest in 45 months in October as export
growth darted to a five-month high above 11 percent, surpassing
China's economy remains heavily levered to the external
sector. Exports were worth about 31 percent of GDP in 2011,
according to World Bank data, while an estimated 200 million
Chinese jobs are supported by trade or foreign investment.
Data on Friday meanwhile showed infrastructure investment
accelerated and output from factories ran at its fastest in five
The uptick in key indicators last month, after signs of a
rebound emerged in September data, cemented views of analysts
and investors that China's rebound was gathering momentum after
a raft of measures by Beijing under its so-called policy
China cut benchmark interest rates in both June and July,
has lowered bank reserve ratios three times since late 2011 and
made repeated, large-scale liquidity injections into the
financial system. It also said in September it had sped up
approval on infrastructure projects worth about $157 billion.
All that has engendered a view that policymakers have done
enough to keep the economy ticking along. Investors had been
concerned that efforts to cool the economy had been mistimed,
unintentionally coinciding with a sharp slowdown in external
demand, with recovery in the United States remaining tepid and
Europe still unable to escape its sovereign debt crisis.
Zhang Zhiwei, chief China economist at Nomura, predicts
China's economic growth will pick up sharply in the fourth
quarter to 8.4 percent, which would be the highest in a year,
from 7.4 percent in the third quarter.
"The stronger-than-expected export data in October supports
our view," Zhang said. "We believe domestic demand is improving
and will likely strengthen further over the rest of 2012 as the
policy stance is set to remain loose," he wrote in a note to
clients after Saturday's trade data.
Consumer price inflation eased to its slowest pace in nearly
three years in October, to sit well below the government's
official 4 percent target.
Government officials have said repeatedly they intended to
use a period of slowing growth in 2012 to adjust economic policy
settings, particularly around prices administered by the state,
that might otherwise risk fuelling inflation.
Such reforms are regarded as crucial, both by foreign
analysts and government think-tanks, if China is to maintain
robust growth needed to close a yawning wealth gap and support
an urbanisation drive core to Beijing's development plans.
Hu's keynote speech at the opening of the congress
acknowledged as much. He said China's development should be
"much more balanced, coordinated and sustainable".
The party, which has constantly stressed the need for
continued one-party rule, has tied its legitimacy to economic
growth and lifting hundreds of millions out of poverty.
Hu will hand over his post as party chief to anointed
successor Vice President Xi Jinping. The congress ends on
Wednesday, after which the party's new Standing Committee, at
the apex of power, will be unveiled.
The economic challenges ahead for China's new leaders remain
intense, even if the near-term risk of a sharp slowdown and
massive job cuts - a so-called hard-landing - has been averted,
according to Alistair Chan, an economist at Moody's Analytics.
"Outgoing President Hu Jintao, Premier Wen Jiabao, and other
retiring members of the Politburo can exit knowing their efforts
to engineer a soft landing are paying off," Chan said.
"A consensus seems to be emerging within China that the
HuWen administration missed opportunities for reform and that
many problems were kicked down the road," he wrote in a client
"Without reform, productivity gains will slow. Growth in the
first half of 2013 could rise back into the 8 percent range, but
this is unlikely to last. In our view, the days of above 8
percent GDP growth in the Chinese economy are over."