China’s Financial Slowdown Puts Pressure on Small Banks

China’s Financial Slowdown Puts Pressure on Small Banks

China, the second-largest economy is facing severe financial stress.

Policymakers are taking steps at a very slow speed to revive the market. The most affected are state-owned companies and small lenders. They are getting no help from the center, states chief economist Andrew Tilton from Goldman Sachs Group Inc.

In the Financial Stability Report released annually by China, the central bank has said that out of 4,400 lenders, 586 are at high risk. The ratio of household debt to disposable income has increased to 99.9 percent in 2018. In 2017, this ratio was at 93.4 percent.

Corporate debt has zoomed up and is currently at 165 percent of the country’s GDP in 2018. The PBOC has raised concern over this unusually huge accumulation of debt.

The trade deal with the U.S. has not materialized yet. Talks that a phase-one agreement may happen sent some cheer to the markets, but not much clarity is provided over the negotiating talks. Investors are moved by news from officials regarding the trade talks.

Meanwhile, the demonstrations from Hong Kong have also unnerved investors. The Hang Seng index has fallen almost 2.6 percent and this is raising concern.

Vice Premier Liu He on Thursday has asked for more capital strengthening in small banks to resolve risks while chairing the Financial Stability and Development Committee in China.

The finance ministry has asked the local government to spend more on infrastructure projects to bring in liquidity and boost the slowing economy. However, the government fears that it may bring in debt problems, though it may help in the country’s financial stability.

The government of Xi Jinping is facing tremendous financial pressure. The rural banks are feeling the heat of the liquidation crunch, while there is a bond restructuring that is hurting the economy.

As the slowdown increases in China, the default levels are increasing and regulators are worried about the consequences.

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