China Exports "Grim"; Bad Loans Rise in Fourth Quarter; China Cuts Bank Reserve Requirements; Looking for Miracles

Given the previous misguided stimulus efforts in China, it is not surprising to discover Chinese Banks’ Bad Loans Rise in Fourth Quarter.

Chinese commercial banks’ bad loans increased in the fourth quarter of last year, highlighting pressures the lenders face in maintaining asset quality as the economy slows.

Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier.

Chinese banks are struggling to keep bad loans in check as the country’s economic expansion slows and the housing market cools under government curbs. Lenders’ non-performing loan ratio had not increased quarter-on-quarter since the end of 2005, according to data compiled by Bloomberg.

China Cuts Bank Reserve Requirements

Bad loans or not, in an attempt to keep its faltering economy together, China Cuts Bank Reserve Requirements.

China cut the amount of cash that banks must set aside as reserves for the second time in three months to spur lending as Europe’s debt crisis and a cooling property market threaten economic growth.

Reserve requirements will fall by 50 basis points effective Feb. 24 the People’s Bank of China said on its website this evening. Before today’s move, the ratio for the nation’s largest lenders stood at 21 percent.

Premier Wen Jiabao aims to steer the world’s second-biggest economy through a property market slowdown and the weakest export growth since 2009, with the commerce ministry last week calling the trade outlook “grim.” The International Monetary Fund said this month that China’s expansion may be cut almost in half if Europe’s debt crisis worsens.

“Growth remains the top concern for policy makers,” Zhu Haibin, a Hong Kong-based economist for JPMorgan Chase & Co. (JPM), said before today’s release. “Monetary policy will be biased toward easing this year.”

Export Slide

China’s exports and imports fell for the first time in two years last month and new lending was the lowest for a January in five years.

Before today's announcement, Ken Peng, a Beijing-based economist at BNP Paribas SA, said the government needs to be “careful not to overshoot monetary loosening, as it did in the financial crisis.” Lingering effects of record lending in 2009 and 2010 include the risk for banks that local government financing vehicles will default, saddling lenders with bad loans.

The government also aims to avoid fueling consumer and property prices. Inflation unexpectedly rebounded to 4.5 percent in January, accelerating for the first time in six months, as a week-long Chinese New Year holiday boosted spending and prices.

China's Problems

• Inflation
• Bad loans
• Property bubbles
• Massive problems with SOEs State Owned Enterprise 
• Pollution
• Unsustainable growth

Loosening lending standards is the very thing that fueled property bubbles, price inflation, bad loans, and gargantuan problems with SOEs. For more on the SOE problem, please see China Financial Markets: When Will China Emerge From the Global Crisis?

Looking for Miracles

Damn the consequences, central banks everywhere inevitably respond to slowdowns with two actions: print money and loosen lending standards. That holds true for the US, China, Europe, and Japan.

There are no miracle cures because printing money and loosening lending standards are why we are in this global fiscal mess in the first place.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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