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China is to strike balanced credit conditions by 2020

CHINA'S credit expansion will slow down to match the pace of spending by 2020 under the government's efforts to deleverage and prevent financial risks, ING chief economist Tim Condon said.

The government's current measures, including setting lower target for money supply and credit expansion, will take effect over time to limit the build-up of debt, Condon said on a recent briefing in Shanghai.

“It's convincing that the Chinese government is worried about the build-up of debt and is taking measures to deal with that,” Condon said. “I think the government's measures will work. In my scenario, at the end of this five-year plan we will see convergence of credit growth and spending growth. When that happens, the people who are bearish about China will have to find new arguments.”

Chinese Premier Li Keqiang in the government report earlier this month placed deleverage and prevent financial risks among priorities for the year.

He said the government will establish a well-regulated mechanism for local governments to secure financing through bond issuance.

“Governments at all levels must tighten their belts and spend every sum of money where it can be seen and where it’s most needed,” according to the report.

The government will also strengthen unified, macroprudential management of foreign debt, Li said.

The central bank last week lifted interest for open market operations and loans it offered commercial banks by 0.1 percentage point to align policy rate closer to market rate and tune down commercial banks' pace of extending new loans.

Condon said the central bank may lift money market rates by another 0.1 percentage point in the second half, and enhance transmission of monetary policies. On the other hand, he said the Chinese government has been good at ensuring corporates' ability to pay their bills through urbanization, investment in infrastructure projects, and encouraging exports.

China is also less vulnerable than other Asian economies to global financial crisis because China's debt is mostly denominated in the yuan instead of the US dollar, Condon added.


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