Tuesday, November 23, 2010

China is Holding Up Loan Growth

A quick note: I'm traveling this week, and the computer I brought has now taken one trip to many. Keeping multiple programs open at the same time (like Firefox and Quote Tracker) is a bit dicey. So, for the next two days, there won't be a Yesterday's Market piece. That will be back on Monday.

From Bloomberg:

China’s biggest banks are close to reaching annual lending quotas and plan to stop expanding their loan books to avoid exceeding the limits, according to four people with knowledge of the matter.

Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Agricultural Bank of China Ltd. are only extending new loans as existing ones get repaid, the people said, speaking on condition of anonymity. Lenders are also cutting holdings of discounted bills to make room for longer-term debt, they said.

Regulators are monitoring banks’ loan balances on a daily basis to ensure the official target of 7.5 trillion yuan ($1.1 trillion) in new lending for 2010 isn’t exceeded, the people said. China’s government in the past month stepped up a campaign to limit credit expansion after inflation quickened and property prices surged.

The Chinese central bank has been very good at using various monetary tools at its disposal. They have been especially good at using various bank policies -- reserve requirements, loan quotas, etc. -- as a way of targeting smaller segments of the economy without slowing down the rest of the economy too much.

This has important implications for the U.S. as China is basically the driver of the world economy now; the U.S. is essentially the caboose. Also note the Chinese market is now a leading indicator of U.S. economic and market activity.