Weaning China off credit addiction

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The Chinese authorities are galvanised to lower the dependence on credit of its economic model so that less credit is needed to generate an increment of GDP growth. Notwithstanding recent efforts to infuse more durable liquidity in to the banking system, going forward, heightened financial oversight of the on- and off-balance sheet usage of credit and further state owned enterprise restructuring will be the norm. This is already achieving some headway. The share of bank deposits as a percentage of Chinese GDP and that of aggregate total social finance (a proxy for on- as well as off-balance sheet lending) have already begun to decline. This development highlights the effectiveness of financial tightening as well as the regulatory crackdown on shadow banking.

Aninda Mitra – Senior Sovereign Analyst. BNY Mellon Asset Management North America

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