FX.co ★ Outlook: China banking sector. Review for September 1, 2011

In late 2008 China launched a 4 trln yuan economic stimulus program to fight world crisis and obliged banks to give credits in order to stimulate activity and prevent recession.
The number of credits nearly doubled to unprecedented 9.6 trln yuan and amounted to 7.95 trln in 2010 which increased inflation and caused sharp growth of house prices.


According to expert estimates new credit volume will reach 8 trln yuan in 2011. However they warn that general new credits including non-banking instrument credits might equal 18 trln yuan.
China has tried various triggers to limit credits and suppress inflation that reached a 3-year high 6.5% by hiking interest rates and reserve requirements to the banks.


However, in case economic problems in the US and Europe cause another recession of world economy and a sharp decline in trade China will have to choose from a limited variety of political measures to smoothen the consequences. The range of options narrowed and further running of the program is going to cause bigger problems in the future.