Guo Shuqing, chairman of China Construction Bank, says that the latest figures for China’s M1 money supply – a key predictor of inflation – had raised concerns that the country’s vast stimulus and bank-lending was running too hot.
“We are seeing a lot of money coming to China which is creating a current and capital account surpluses,” Guo says.
He also warned that the continuing splurge in lending also raises the risk
of a sharp rise in non-performing loans among smaller Chinese banks that have funded local government infrastructure projects, often of dubious viability.
“I think that small banks last year newly issued loans grew even fast,
some even doubled their liability and assets,” Guo told the UK Telegraph.
China’s regulators have introduced numerous measures aimed at cooling its economy, including forcing banks to raise the capital adequacy ratios and hitting second home buyers with regulation designed to drive speculators out of the property market.
Nonetheless, Guo says that the effectiveness of measures to cool house prices could be blunted by the massive reserves of cash still being held by private developers.
“Sales are falling but prices are not,” he said. “Developers have a lot of cash, so they’re not too concerned at the moment.”
A widening of spreads on dollar bonds issued by developers could signal the imminent bursting of China’s property bubble, MarketPulseFX reports, sending a clear signal that investors are demanding greater yields to lend to China property firms because they expect borrowers will have a harder time meeting debt payments.
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