Banks in the Asia-Pacific region have curbed credit to clients by more than $100bn since mid-2021, the steepest decline among lenders from other regions, with the bulk of the overall contraction attributable to Chinese banks operating outside China, according to Bank for International Settlements data released on January 31.
Non-Chinese banks’ credit to China, as recorded by the BIS international banking statistics, paints a similar picture.
As of end-September 2023, global banks’ credit to China, which includes both their cross-border credit and local credit booked by their affiliates located in China, stood at $826bn, or 12 per cent lower than in mid-2021.
More than half of the decline over this period related to credit for non-financial corporate clients, which include real estate companies, a sector representing around 30 per cent of China’s overall gross domestic product, and which has faced challenges since 2021. In that year, Evergrande, China’s second-largest property developer, missed debt payments, highlighting strains in the broader sector.
The decline since mid-2021 can also be attributed to international factors. The Covid-19 pandemic, the conflict in Ukraine and international monetary policy tightening reduced monetary flows internationally.
The growing political tension between China and Western economies has already pushed many multinational corporations to not only reduce their investment in the country, but ask their onshore subsidiaries to be more financially independent, according to a note from Deutsche Bank. Moreover, the divergence in monetary policy cycles between the US and Europe and those of China has caused onshore financing to become cheaper than offshore financing.
As a result of all these developments, in the third quarter of 2023, foreign direct investment into the country turned net negative for the first time on record, at –$11.8bn, as reported by specialist publication fDi Intelligence.
Fitch Ratings expects the Chinese authorities to unveil more support measures to shore up economic growth and stability as mainland China’s growth is forecast to moderate to 4.6 per cent from just over 5 per cent in 2023.
In January, the country eased the rules on bank loans pledged against developers’ commercial properties by allowing them to use the loan proceeds to repay other loans and bonds. Proceeds from such loans were previously limited to operating expenses related to the pledged properties. This, along with the announced reserve requirement ratio cut for early February, highlight the persistent liquidity struggle at many developers and the government’s intention to arrest the downward spiral, says the rating agency.
