Shanghai: Fears of more Chinese policy tightening spooked global markets on Tuesday after Beijing ordered some banks to comply immediately with a planned increase in reserves and a report suggested earlier attempts at curbing lending had failed.
The developments prompted concern that the central bank would get more aggressive about reining in credit to fend off inflation and asset bubbles, potentially dragging on growth in the world's third-largest economy.
China implemented a planned increase in required reserves for some banks yesterday, sources said, sparking heavy selling of Asian stocks that underscored how sensitive global investors are becoming to Beijing's tightening of monetary policy.
Qu Hongbin, chief China economist with HSBC in Hong Kong, said five major banks had suggested they had received instructions from authorities last week to slow new lending, but not stop it.
Outlook
"We continue to expect more quantitative tightening measures to cool new lending in the coming months," Qu wrote in a note to clients, adding that he expects a rate increase in the second quarter.
"That said, we do not believe that Beijing will slam the brakes on credit growth this year, not least because Beijing also has other more effective policy tools to deal with rising overheating risk — slowing down the pace of new infrastructure projects," he said.
China has been one of the main drivers of the global economic recovery in the absence of a strong rebound in the West and investors fear a slowdown there would stunt its demand.
Chinese banks extended 1.45 trillion yuan ($212 billion, Dh780.15 billion) in new loans during the first 19 days of the year as they scrambled to front-load lending, the 21st Century Business Herald reported, suggesting that Beijing is finding it hard to slow robust credit growth which the government fears could lead to overheating.
