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The Chinese banking sector will remember the summer of 2013 as the beginning of a series of painful reforms that heralded a concerted government effort to correct its past mistakes.迷你倉新蒲崗 But in time it might come to collectively acknowledge that the introduction of stricter government policies paved the way to a more sustainable future. In early June China’s banks suffered their worst liquidity crisis in more than a decade. China Everbright Bank was unable to pay back a 6 billion yuan ($979 millions) loan it owed to the Industrial Bank, sparking liquidity concerns across 20 Chinese banks. This pushed the interbank lending rate past the 10 percent mark, far higher than the generally accepted level of 2.5 percent. The subsequent turmoil in the money market spread to the capital market, causing the yield on a one-year government bill to exceed the yield on the 10-year government bond. In the face of chaos, the People’s Bank of China held firm. The common strategy of China’s central bank in such a scenario is to inject additional liquidity to rescue the market. The banking sector, analysts, academics and journalists expected more of the same this time also. However, the PBOC confounded all expectations. It issued another 2 billion yuan 91-day government note, which withdrew additional capital from the system. The surprise move panicked the markets and the Shanghai stock index plunged 5.4 percent on June 24. It was a risky test of the resilience of the markets — could they recover without government intervention? The eventual restoration of order proved they could, marking a successful experiment that, crucially, will give the government the confidence to repeat the dose. Although we have the benefit of hindsight, playing tough was the right call. China’s liquidity wobbles stem from the 2008 stimulus plan when the government pumped 4 trillion yuan into the economy to soften the fallout from the global financial crisis. Local governments poured the money into unprofitable infrastructure projects and created an unsustainable property bubble. Projects were postponed and housing prices stalled. Bank loans could not be paid back. Most of the banks believed the PBOC would soon relax its monetary policy stance in the knowledge that the central bank had always moved to plug any liquidity gaps. So to pursue higher profits they expanded their loan book aggressively. During the first 10 days in June, total loan growth in China reached 1 trillion yuan. Some banks even lent their full quota for the month in just 10 days, directly contravening the government’s efforts to stabilize the money market and bring it in line with long-term aims to rebalance the economy. By refusing to bail out China Everbright Bank, the PBOC sent a forceful signal to the market that banks should start managing risk carefully and accept responsibility for their own liquidity positions. If they fall in trouble, the PBOC has made it clear that it is no longer willing to act as their last resort through unconditional bailouts. Instead, the government will rely on the invisible hand of the market and allow the system to gradually restore equilibrium. Anecdotal evidence suggests banks are responding by implementing their own reforms to rein in irresponsible lending, in some cases even taking extreme action. An employee at one of China’s Big Four banks told me they are under great pressure to reject unsuitable loan applications, with the bank in some cases forcing employees to accept personal liability — for example through their pension pots — for loans that turn bad. The second major summer reform came on July 20 when the PBOC announced that China’s banking industry was bein迷你倉出租 given the freedom to set their own lending rates. Symbolically, it was a highly significant move. It increases competition among China’s banks, removing the protective barrier that has long circled China’s biggest four State-owned banks and allowing smaller commercial banks to compete on a more level playing field. It was another firm indication of the government’s ambitions to further liberalize the Chinese economy and force the Big Four to innovate in the face of stiffer competition. It marks the start of a gradual process that will be accelerated by the next big reform on the horizon: the liberalization of deposit rates, which will help smaller banks attract more customers. We can expect this policy change to be introduced in about six months to a year, after the government has reviewed the country’s overall economic development. And we can also expect that the Chinese government will lift a ban on initial public offerings currently preventing smaller Chinese banks from listing on the stock exchange to raise more funds. The author is a lecturer in business and finance at the School of Contemporary Chinese Studies, the University of Nottingham. The views do not necessarily reflect those of China Daily. outlined a realistic development path. Much concern surrounds the growth of China’s shadow banking system, a complex web of off-the-balance-sheet, high-interest loans that evade the scrutiny of bank regulators. All the banks are doing it – from the Big Four to the country’s smallest – and a large proportion of the money is going to property developers and local government financing arms. Although precarious, the situation is under control. When Wen Jiabao was Chinese premier, he tried to tame this shadow-banking sector. He recognized the severity of the problem but noted that it was mainly confined to China’s eastern coastal areas, where economic development is faster and the real estate market is more prosperous. Since Wen’s retirement, the government has been relatively quiet on the issue, recognizing that its hands are tied. Small and medium-sized companies rely on shadow lending to grow due to a lack of access to regular bank loans, largely due to the government’s own lending restrictions. To address this issue, on August 12 China’s cabinet unveiled plans to set up more private banks and open up more financing channels to provide additional support for cash-starved SMEs. The other issue cited as a major worry is the proliferation of wealth management products, which banks are using to finance lending to high-risk borrowers through the shadow banking system. Banks try to persuade their customers to withdraw money from their regular savings account and purchase a WMP, which pays a higher rate of interest due to the fact the money is being lent at a higher rate to risky borrowers. But for now banks are struggling to make these WMPs attractive to members of the public, whose confidence is low following collapses in both the stock and housing markets. Increasingly skeptical investors prefer government bonds that offer a stable level of return not much lower than the rates offered through WMPs – a three-year bond is typically within the 3.5 percent-5 percent range while WMP returns average around 5-6 percent. Many banks will be forced to undergo painful adjustments in the short term as competition across the sector intensifies but they are likely to emerge stronger in the long run. They may just recall the summer of 2013 as the turning point. The author is a lecturer in business and finance at the School of Contemporary Chinese Studies, the University of Nottingham. The views do not necessarily reflect those of China Daily. 儲存倉