Mission impossible
As the economy sputters, regulators are putting more pressure on financial institutions to help shore up growth.
On Friday, the central bank (PBoC), financial sector regulator (NFRA), and securities regulator (CSRC) called in China’s biggest financial firms, including banks, China Life, and the stock exchanges.
The message was clear.
- “Major financial institutions should…increase lending”
- “We must…maintain the pace of loan growth…and enhance financial support for the real economy.”
Some context: Credit demand has plunged in recent months.
- Net new bank loans in July rose the least since November 2009.
Regulators put out a veritable laundry list of demands.
They want financial institutions to seek out sectors that still might need loans. Specifically:
- Small and medium-sized enterprises
- Green industries
- Innovative companies
- Manufacturing
- Upgrading urban villages
They also want to “adjust and optimize real estate credit policy” – which sounds like more loans for developers.
Lower interest rates look likely as well, with the readout of the meeting calling for:
- “The steady and moderate reduction of financing costs”
Financial institutions must also:
- “Coordinate financial support for local debt risk resolution”
ICYMI: In late July, the Politburo promised it would roll out a basket of measures to deal with risks posed by local government debt.
Get smart: Banks have traditionally come to the rescue in previous economic downturns by pumping credit into infrastructure and housing.
- That’s no longer a viable solution.
Our take: Trying to push more lending into the economy when demand and confidence is this low will be almost a mission impossible.