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China: Under financial stress - ING

FXStreet (Delhi) – Tim Condon, Chief Economist at ING, suggests that flat industrial enterprise sales revenue and profits increase financial stress, which could spill over into the banking system of the China.

Key Quotes

“Chinese equities were big outperformers yesterday on the announcement on Saturday that the PBOC would expand a pilot re-lending program to nine provinces from the original two. The pilot began last year in Guangdong and Shandong allows banks to use loans as collateral for PBOC. Local press reports put the expected size of the pilot program at CNY50bn. For comparison, new Yuan loans in September alone are forecast at CNY900bn (data due by Thursday).”

“The adverse export shock this year reinforced the housing collapse that started in 2014. The authorities are trying, so far unsuccessfully, to offset the shocks with infrastructure investment. Flat year-to-date industrial enterprise sales revenue and profits have increased financial stress and there is a risk that some of the stress could spill over into the banking system, which is the hard-landing scenario.”

“It may take a return to positive year-over-year growth of housing starts to relieve the financial stress on industrial enterprises. Home sales are growing again and new home prices are on track to year-over-year growth, which leads us to expect that housing starts will begin growing again by the middle of 2016.”

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