End of an era in Chinese banking
2011-05-27 10:16:30
Chinese bank assets have been increasing by 17% to 20% on an annual basis, but the good times may soon be coming to an end.
Recently, the People’s Bank of China and the China Banking Regulatory Commission (CBRC) released statistics that call for close attention.
By the end of April, the outstanding balance of the broader money supply, known as M2, was 75.73 trillion yuan ($11.67 trillion yuan), increasing by 15.3% compared to the same period last year. Second, as of March, the total assets of the banking industry in both domestic and overseas markets reached 101.2 trillion yuan, an 18.9% increase compared to the first quarter in 2010.
China has surpassed the U.S. and Japan in terms of the value of M2, as China’s M2 is around $11.55 trillion, exceeding the U.S.’s $8.98 trillion and Japan’s $9.63 trillions. In addition, if assets keep increasing at a rate within the range of 17% to 20%, the total value of the banking industry’s assets will double in four years.
The data revealed two possible trends: One is a forced downturn in the value of assets owned by banks. Inflation and the rising price of assets could put more pressure on yuan’s value. Pressure also comes from the possible decline of banking assets initiated by the central bank.
In the current situation, neither tightened nor loosened monetary policies will make much of a difference.
Under the recent monetary-tightening policies, non-state-owned companies have had limited access to loans. Demand for private financing channels has significantly increased, with more capital flows into the non-bank financing market. In April, newly added residential deposits declined by 467.8 billion yuan from the same period last year.
A shrinking of the banking industry is inevitable. The major concern centers on the real value of the 100 trillion yuan in assets currently owned by banks. The economic base has changed for banks, and while they still seem to be safe, fluctuations from the value of the yuan will introduce significant pricing instability in the future.