Credits by Chinese banks are on a leash, cashing a slowdown in China’s breakneck growth speed. Financial and political analyst Victor Shih explains in Business Week how that works out.
Victor Shih, a political scientist at Northwestern University who studies the local debt problem, says the banks are reacting to poor returns on their investments in everything from real estate to subway lines. “Banks’ focus now is to use existing credit to ensure loans don’t go into default,” says Shih. “That makes credit to new projects more difficult—one reason we are seeing a slowdown.”
Moody’s estimates that 8 percent to 12 percent of China’s total loan portfolio could be nonperforming: The official figure is 1.2 percent. Earlier this year, Fitch Ratings warned that nonperforming loans could reach as high as 30 percent. Especially vulnerable are small businesses. They account for 80 percent of employment, according to China’s Ministry of Industry and Information Technology, yet struggle to get credit.
More about the credit crunch in Business Week.
Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.
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