FT: high China rates are good
2014-01-13 02:03阅读：
Rising rates will help cure
China’s credit addiction.
Joe Zhang,
FT, 13 Jan. 2014,
In June and December last year,
China’s interbank interest rates
jumped from their normal level
of about 3 per cent to
peak as high as 9 per
cent a year. The shockwaves
did not stop there. Banks
scrambled for deposits and
pushed up interest rates on
their wealth management products.
Funding costs in the vast
shadow banking sector also moved
up, while stocks and bonds
suffered falls.
Observers at home and abroad
expressed concern about bad
debts and the fragility of
the banking industry. Some even
called it China’s “Minsky
moment” – a term coined
during the Russian debt crisis
of 1998 to describe the
turmoil that arises when
overstretched investors must finally
repay their debts. Some fear
that tighter credit markets
could cause asset prices to
collapse and precipitate a
meltdown of the banking
industry. But as someone who
worked at China’s central bank
in the 1980s, I am
encouraged by the government’s
willingness to tackle the
country’s 35-year addiction to
cheap credit.
Central banks are usually thought
of as lenders of last
resort. But in the 1980s
and 1990s, the People’s Bank
of China was the first
port of call for banks
whose lending ambitions were
larger than their deposit bases
could sustain.
I participated in the banks’
bargaining, not just in the
loan quota-setting sessions that
took place at the beginning
of each year but also in
ad hoc negotiations that
unfolded in smoky boardrooms. It
was a common scene in the
dark and narrow corridors of
the People’s Bank: a mayor
or a governor from some
province would sit patiently,
sometimes for hours, waiting for
an opportunity to lobby my
senior colleagues for a bigger
loan ration for banks in
his province or city. Even
junior officers such as me
found ourselves on the receiving
end of their entreaties –
and freebies.
Instead of lending out 60 or
70 per cent of their
deposits, the banks would lend
out more than 100 per
cent. The extra money came
from the central bank’s printing
press.
Official data show that the
banking sector’s loan-to-deposit ratios
had been well above 100
per cent for a few
decades until the mid-1990s.
Since then, the central bank
has forced down loan-to-deposit
ratios. But the flow of
easy money has not ended.
In fact, it has swelled.
In part, that is because the
reduction of the loan-to-deposit
ratio was more than offset
by the recapitalisation of the
banking system with the creation
of four so-called “bad banks”.
This enabled lenders to extend
new loans, which, once placed
in borrowers’ bank accounts,
lifted deposits and made way
for yet more lending.
A further source of capital was
provided by the public listings
of the 16 largest banks,
together with subsequent share
placements. As a result, total
credit growth accelerated from
roughly 8 per cent in
1999-2000 to a compound annual
rate of about 17 per cent
since then.
Today there are three major
restrictions on the banks’
credit expansion: the very high
reserve requirement ratio of 20
per cent (far higher than
in any other major economy);
the 75 per cent cap on
the loan-to-deposit ratio; and
credit quotas for each bank.
It all adds up to a
picture of regulatory prudence.
The bucket is leaking, however.
The banks have easily
circumvented these restrictions by
selling “wealth management products”
that serve some of the
same purposes as deposits. And
their lobbying efforts continue
unabated. In 2012 I found
myself advocating on behalf of
a regional lender. Sitting
opposite me were my former
colleagues from the central
bank, and I felt very
uncomfortable.
The recent interest rate jumps
were far from unprecedented. In
the 1980s and 1990s,
overstretched banks regularly found
themselves without money to meet
withdrawals. There was no panic
at the time, as the media
never reported these things and
there was no interbank
market.
The central bank stepped in to
provide emergency loans. These
had become commonplace, and some
banks began deliberately using
the tactic as a matter of
routine, to extract more loans
from the central bank. Although
the banks would receive a
slap on the wrist in
punishment for their misbehaviour,
this did little to deter
repeat offenders. Bankers and
local politicians would jokingly
say: “The thrill justifies the
sin.”
The rapid growth of bank loans
after the early 1980s, coupled
with lax credit standards,
resulted in non-performing loans
that accounted for 30-40 per
cent of loan books by the
late 1990s. To prevent a
repeat of that episode, the
central bank is now playing
tough. It is to be hoped
that the rules of the
game will change over
time.
China needs higher interest rates
to cool its property bubble,
reduce wasteful investments and
minimise the extent to which
ordinary savers subsidise business.
The government remains reluctant
to undertake a full
liberalisation of the credit
market. But even before it
does, market forces are driving
interest rates higher.
The writer is the author of
‘Inside China’s Shadow Banking:
The Next Subprime Crisis?’
