Further relief spread over China’s financial markets today after the country’s central bank promised that it wouldn’t allow the recent credit crunch in the world’s second largest economy to turn into a crisis. In a statement (link in Chinese) late yesterday, June 25, the People’s Bank of China said it would act as a lender of last resort and that it had already come to the aid of some Chinese banks.
But not everyone is pleased. In what amounts to a stinging rebuke, Jiang Jianqing, chairman of the Industrial and Commercial Bank of China, China’s largest bank as well as the world’s biggest commercial bank by market value, told Reuters, “We hope that in future, policy expectations can be clearer.” It’s rare for such high-level Chinese executives to be so bold with their frustration.
In restricting access to cheap inter-bank loans last week, China’s central bank was trying to rein in informal lending that some fear could turn into a credit bubble. That includes such risky activities as the booming issuance of “wealth management products” as well as speculation in China’s property and stock markets. Market jitters have calmed, but as we’ve reported, the crisis revives concerns about how much debt Chinese banks have taken on—debt that cheap credit has been helping conceal.
Jiang said his bank would would need clearer signs of the direction of monetary policy in order to follow a recent mandate to begin lending more to smaller banks. “That would help us understand the overall market situation better and more deeply. Those few days, even for us, we were genuinely a bit tense.”