2015-01-17

Credit Conditions For Small Business Worsened in 2014

Yu Fenghui: M2增速透出三大严重金融问题 (M2 growth revealed three serious financial problems)

One:
On the money supply, the traditional lending too much rebound, the market has been shrinking diversified financing pattern. Also released in 2014 was the size of social financing 16.46 trillion yuan, 859.8 billion yuan less than 2013. Among them, the RMB loans increased 9.78 trillion yuan, up by more than 890 billion yuan from a year ago, accounting for up to 59.4%, up 8.1 percentage points higher than last year. And entrusted loans, trust loans, bank acceptance bills undiscounted other social financing are showing a smaller increase or outright decline. These numbers reflect that RMB loans are invested in large-scale state-owned enterprises, listed companies, indicating the trend of SME loan financing difficulties has intensified. This is a very alarming phenomenon.

Two:
Loan growth and deposit growth structural imbalance is another issue worthy of attention. End of last year RMB loans 81.68 trillion yuan, 113.86 trillion yuan deposits, savings and loan ratio was 71.7%. And last year, a net increase of 9.78 trillion yuan in loans, deposits net increase of 9.48 trillion yuan in deposits last year, the incremental loan to deposit ratio was 103%. This reflects excessive commercial bank lending, deposits decreased substantially, indicating that bank lending operations in overload, behind this lurks a huge risk.

Three:
At the same time, the central bank data showed the country's foreign exchange reserves last year was $ 3.84 trillion, down $ 150 billion from $ 3.99 trillion at the end of last June. We note that the Customs Department recently released data show that in 2014 trade surplus of 2.35 trillion yuan. This shows that the decline in foreign direct investment, including the withdrawal of foreign investment in China accelerated. This is a very interesting and important financial phenomenon. On the one hand you want to prevent a large-scale withdrawal of foreign capital markets caused by China, the property bubble burst detonated usury financing, local debt and overcapacity financial risks include. On the other hand foreign exchange reserves decline, reducing foreign exchange, monetary policy in particular, have long relied on foreign exchange to the central issue of base money passively mode pose a new challenge. Monetary policy operation control methods must change, if the reserve currency role of the need to change the flow of the pond, the central bank must carefully think about and to control. In short, a series of questions to reflect last year's financial data, there must be thorough and effective countermeasures.

These issues may be why Beijing is announcing new efforts to help SMEs: Beijing rolls out fresh support amid slowing growth
The mainland's top policymakers pledged to offer fresh credit support to small firms and drive reforms to spur the economy amid expectations that growth in 2014 fell below target for the first time in 16 years.

The pledges came as overseas investment was rapidly closing its gap with foreign spending in China, which will "make China a net investor in no time, marking a historic turning point", Vice Commerce Minister Zhong Shan yesterday.

The mainland economy is facing both favourable structural changes, including an expanding services sector and accelerating outbound investment, and also challenges, such as a weak property market, overcapacity, and rising default risks.

Outbound investment surged 14.1 per cent to a record US$102.9 billion in 2014, while foreign direct investment growth cooled to 1.7 per cent at US$119.56 billion, the weakest in two years, the ministry said. FDI in the services sector achieved 27 per cent growth, offsetting a 4.1 per cent drop in investment in mining.

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