China is tightening credit the most in a decade to bring the economy to more sustainable growth at nearly 7% per year, compared with over 9% in recent years.
As a result, the country’s credit-to-GDP ratio has increased from 120% to nearly 200% in nearly 5 years.
Investors are concerned that the credit bubble in China is similar to the US during the 2008 crisis. Once it bursts, it will drag down the world’s second largest economy.
China is reining in the credit boom of recent years.
Therefore, from the beginning of the month, the Central Bank of China (PBOC) began cutting money supply in the interbank market.
However, PBOC is still determined not to inject more money into the market.
According to Xinhua, cash on the market is currently very abundant.
According to WSJ, another cause of the cash shortage at banks is due to a sudden decrease in foreign investment capital, when China increased control over speculative money flows and economic development slowed down.
However, PBOC still affirms that China’s financial market is under control and that factors temporarily affecting interest rates will soon disappear.
According to Bloomberg, Chinese Prime Minister Li Keqiang’s transition to a sustainable growth model will have many impacts on economic activities at home and abroad.
Shane Oliver, investment strategist at AMP Capital Investors (Australia) said: `It’s only this week that I feel really worried. Things in China are very different and unpredictable. This will affect
This is also a challenge for countries that depend on China for exports, such as Brazil, Australia or South Korea, in the context that developed countries have not yet been able to recover after the crisis.
Worries about the liquidity of the Chinese banking system also caused a sell-off in Asian markets and pushed gold prices down.
However, David Loevinger, former adviser on China issues at the US Treasury Department, said: `Tightening credit now will strengthen sustainable growth prospects for China in the future. This is good for
Agreeing with Loevinger, Manoj Pradhan – economist at Morgan Stanley London said that the US and Japan have many signs of recovery which also means the world `has a better foundation to support when China starts to slow down.`
