Mar 6, 2010
Wen warns of ‘latent risk’ in China’s banks
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A woman walks out from a Bank of China branch office in Beijing. The China government has affirmed its target of reducing new loans by 22% to 7.5 trillion yuan this year. — AP
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BEIJING: Premier Wen Jiabao warned of “latent risk” in China’s banks and pledged to crack down on property speculation as the government faces the consequences of flooding the economy with money to drive growth.
“The domestic economy still faces some prominent problems,” Wen said in a speech in Beijing to the National People’s Congress, similar to the US State of the Union address. He also cited excess capacity in manufacturing and weak support for ruralincome growth.
Wen’s comments reinforce concern that loans made in last year’s record 9.59 trillion yuan (US$1.4 trillion) credit boom may go bad. Harvard University Professor Kenneth Rogoff has said growth could slide to 2% from Wen’s 8% target within a decade as a debt-fuelled bubble collapses, and Victor Shih of Northwestern University sees risk of a crisis in 2012.
“A year ago, the overwhelming priority was to get growth going and worry about the potential consequences later,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England.
“We’re closer to a possible reckoning.” Wen is trying now to rebalance the economy away from investment and infrastructure spending, toward consumption. The government pledged yesterday to raise health and social security outlays by more than 8% in 2010 and expand pensions, efforts that may help buttress consumption in the world’s third-largest economy.
Transportation spending will be cut 2.7%. The government affirmed its target of reducing new loans by 22% to 7.5 trillion yuan this year after property prices climbed the most in 21 months in January.
The Shanghai Composite Index rose 0.1% as of the 11:30 am local time break in trading, after a decline of about 13% from last year’s August high on concern that monetary tightening will slow growth and cut profits. — Bloomberg
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