In the wake of recent China’s announcement to cut Reserve Requirement Ratio (RRR) for some banks, the latest figures shows slow-down sign to speeding track of default in China’s manufacturers and developers. However, snowball effect is growing.

Courtesy Reuters

Source: The Standard Finance

A credit crunch that plagued China last June, is unlikely to occur this year as there is enough liquidity, the People’s Daily said yesterday.

“The State Council has stressed at a regular meeting that policymakers will lower the reserve requirement ratio for banks that extend loans to rural borrowers and small firms instead of a general RRR cut. Also the interbank borrowing rate has been kept at a low level. Both indicate sufficient money supply,” the state-run newspaper quoted an analyst as saying.

As of May 30, the overnight Shanghai Interbank Offered Rate (Shibor) was 2.57 percent.

A year ago, the rate had shot up to 13 percent amid liquidity shortages at leading mainland banks and financial institutions.

Last month, the People’s Bank of China injected a net 174 billion yuan (HK$215.83 billion) into the market in a bid to deter a credit crunch similar to that of last year.

Meanwhile, local government debt reached 18 trillion yuan as of June 2013 from less than 5 trillion yuan at the end of 2007, International Finance News reported yesterday.

If local governments are not allowed to go bankrupt and the central government is always backing them, then, moral hazard will always exist and the debts may grow higher to a very bad level,” the daily quoted Yan Hong, deputy dean of China Academy of Financial Research at Shanghai Jiaotong University, as saying.

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