Investors fear global markets are vulnerable to the Chinese credit crisis

Investors are warning that the cheerful mood in global stock and commodity markets could reach an unfortunate end if Chinese policymakers restrict lending to prevent the country’s economy and financial markets from overheating.

All money managers recognize that more restrictive borrowing in the world’s second largest economy could have reverberations around the world.

“Given China’s influence in emerging markets, a pre-emptive or pre-emptive tightening of monetary policy poses a threat to financial stability in China, Asia and the broader emerging market spectrum,” said Brendan McKenna, international economist at Wells Fargo. Monday note.

Analysts noted that some measures of Chinese credit growth were reversed at the start of the year. These brought painful memories for traders who watched global markets collapse at the end of 2015 when credit growth stalled.

In a debt-ridden economy, it is expected to grow by a factor of High percentage of number one this year, The unexpected tightening of credit faucets in China could de-shine those rosy expectations.

In fact, the Pimco bond fund manager has warned that one of the biggest risks to their mostly optimistic outlook for the global economic trajectory is excessive tightening from Chinese monetary policymakers.

Pimco was concerned that Beijing, as part of its efforts to control financial conditions in an economy with high levels of debt among households, businesses and local governments, could end up in a state of exhaustion.

In the past few months, top officials at the People’s Bank of China, including Bank Governor Yi Gang, have suggested that the central bank will control lending to keep the recovery going without endangering the country’s financial stability.

However, concerns about the latter seem to have triumphed after Ma Jun, an adviser to the People’s Bank of China, warned that the risk of asset bubbles would increase if the central bank did not adjust its policy this year.

John’s comments hinted at mounting pressure on the central bank to change course, after the People’s Bank of China kept its policy loose throughout the past year to support a recovery from the depths of the epidemic that originated in China.

His comments coincided with the central bank’s removal of liquidity from the financial system, which pushed the one-day interbank lending rate to its highest level in more than a year at 2.8% last Tuesday.

The sudden hike in lending rates extended to the rest of China. Last week, the Shanghai Composite Index CN: SHCOMP The two-year Chinese government bond yield decreased 3.5%, while the two-year Chinese government bond yield increased 18 basis points.

Traders fear that the liquidity support from the People’s Bank of China will not come before the Chinese New Year, a time when the central bank has traditionally pumped cash into the money markets to meet the increased consumer spending and the demand for cash that comes with the long holiday period.

But Yan Wang, chief emerging market and China strategist at Alpine Macro, cautioned against a very deep reading of moves in short-term lending rates.

In his view, money market prices have been too volatile to provide clear clues about the central bank’s stance on monetary policy.

Wang said it is very important to watch what could lead to excessive tightening, namely the intensification of inflationary pressures, the volatile real estate market and Unrestricted shadow lending. In all of these considerations, the central bank is unlikely to cause another credit crisis.

“The tightening provisions are not in place,” Wang said.

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