China credit crunch unlikely

A new credit crunch in China similar to the one in June of last year is unlikely to occur again in 2014 as there is enough liquidity, the People’s Daily reported yesterday. “The State Council stressed at a regular meeting that policymakers will lower the reserve requirement ratio for banks that extend loans to rural borrowers and small firms instead of a general RRR cut. Also, the interbank borrowing rate has been kept at a low level. Both indicate sufficient money supply,” the state-run newspaper quoted an analyst as saying. Last month, China’s central bank injected 174 billion yuan to deter a credit crunch similar to that of last year. “If local governments are not allowed to go bankrupt and the central government is always backing them, then moral hazard will always exist and the debts may grow higher to a very bad level,” the daily quoted Yan Hong, deputy dean of China Academy of Financial Research at Shanghai Jiaotong University, as saying.