China's Changing Bank Policies

I'm just going to get it out of the way and say that, yes, I'm disappointed about Massachusetts. Keeping the Democratic majority was a vital aspect of getting things accomplished in the Senate this term, and for Scott Brown to assume Ted Kennedy's seat...it's a bit awkward. Am I stunned? No. Do most Democratic voters even realize an election took place? Maybe this morning, but who knows, there could have been a clam bake on the Cape that got in the way of heading to the polls last night. COME ON! Ugh.

But something that is coming to light on the periphery is that China has instructed it's banks to stop lending for the rest of the month, and to increase bank reserves to protect against failed loans. While this may be an effective method at curbing potential inflation, there are other ripples being created by the cutbacks. Not only have shares in major Chinese banks dropped, but the implication that China's government anticipates economic trouble stands. Namely, preventing asset bubbles in the stock and property markets is a pretty good indicator that such bubbles were expected on the horizon.

The Washington Post has reported that the chairman of the China Banking Regulatory Commission Liu Mingkang expects this year's total loans to drop by 22% this year, down from the record 9.6 trillion renminbi of 2009. And although some sources say the government has ordered a halt to all lending for the remainder of January, others insist that lending is being stopped only at banks that fail to meet government standards. Either way, the worry is there; too much money in the market leads to an overheated economy, and China does not want to go the way of the United States and Europe (as stated without subtlety here).

Although Chinese officials insist that the restrictions are minor, and that the 7.5 trillion renminbi lending target is still robust, I have my reservations. Naturally, only time will tell what the future is for international economics; how China's lending practices will impact the United States will have to wait until next week when some more answers surface.