Chinese premier pledges more entrepreneur loans

5 years ago by in China Tagged: ,

BEIJING (AP) — China’s premier pledged to tighten risk controls on its banks and see that they do more to help entrepreneurs to sustain economic growth in the face of a possible global slowdown.

Speaking at a weekend financial planning conference, Premier Wen Jiabao said China’s financial industries are sound but still face risks. He also pledged to press ahead with reforms aimed at giving market forces more influence over lending but no details were announced following the two-day meeting, held to make plans for the industry over the next five years.

Private sector analysts had expected few major changes out of the meeting because of a lack of agreement within the ruling Communist Party. Party factions are jockeying for position ahead of a once-a-decade handover of power this year to a younger generation of leaders, distracting attention from reform work.

China’s state-owned banks avoided the financial turmoil that battered Western institutions, but a slump in global demand and exports is fueling concern its relatively robust economic growth might slow dangerously.

Rapid economic growth slowed to 9.1 percent in three months ending in September from a year earlier, and indicators of industrial activity show manufacturing and export orders shrank in November and December.

“We should especially note that the global financial crisis has not ended. We should strengthen our awareness of risks,” Wen said Saturday, according to a text released by the government. “Risk aversion should be the lifeline of our financial work.”

Analysts say the government needs to overhaul China’s banking industry to make the economy more efficient, increasing lending to entrepreneurs and letting market forces determine interest rates and who can obtain loans. For now, most lending goes to state companies rather than entrepreneurs, who generate most of China’s new jobs and wealth.

Chinese entrepreneurs, especially exporters, have been battered by slumping global demand and government lending curbs imposed to cool an overheated economy. Thousands of small companies have closed and the survivors have laid off workers, heightening social tensions and government fears of unrest.

The premier, the country’s top economic official, repeated a government promise to have banks do more to support entrepreneurs and industry, saying lenders need to “ensure financing for the real economy.”

Wen had promised more bank lending to entrepreneurs last year after the credit crunch forced many to turn to high-interest underground lenders, but it is unclear how much lending has increased.

In his weekend speech, Wen promised again to “allow market forces a greater say in deciding fund allocation,” but gave no indication what changes would be made.

Industry analysts worry that the multibillion-dollar flood of extra lending ordered by Beijing in response to the 2008 global crisis might leave banks with a mountain of bad debts. Analysts worry about a wave of defaults by local governments but officials have said such risks are manageable.

The government clamped down on bank lending after its multibillion-dollar stimulus fueled a surge in stock and real estate prices. A downturn in export growth prompted Beijing to reverse course and promise to ease some controls, though it said most will remain in place.

The government newspaper China Daily said last week that an initiative to create a separate government department to oversee risks in the financial industry might be announced at the meeting, but there was no word on that Sunday.

According to a government statement after the meeting, the assets of China’s financial industry stood at 119 trillion yuan ($18.8 trillion) at the end of November 2011. It said that was a 149 percent increase from the end of 2006.

 

Copyright 2012 The Associated Press