situation report

China: Local Banks Worried by Central Directive to Lend More to Manufacturers

1 MIN READSep 24, 2019 | 19:05 GMT

What Happened: Several unnamed Chinese local bank officials have expressed concern about the central government's push for their institutions to pump credit into manufacturing operations after lowering the reserve requirement ratio, noting that such lending would lead to more nonperforming loans due to the slowdown in manufacturing, Caixin reported Sept. 24.

Why It Matters: The report highlights the risks Beijing faces as it tries to jolt the economy to shore up employment in its manufacturing sector. As it stimulates the economy, China is trying to avoid overheating the property market by focusing on infrastructure and manufacturing. Local lenders will bear the brunt of the risks, as will local governments mandated to borrow more for infrastructure projects.

Background: Beijing's request follows a Sept. 6 decision by the central bank to lower the reserve requirement ratio 50 basis points, freeing $126.35 billion in lending capacity.

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Editor's Note: This report has been amended to correct the references to the central bank's decision on the reserve requirement ratio.

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