Chinese businesses weathered the financial crisis well, mostly thanks to the enormous flow of cash from Chinese banks last year, when new loans expanded at triple-digit rates.
Now, however, there are increasing signs that companies are finding it slightly more expensive to get access to credit, as the banks cut back on their largesse.
The latest readings from the Xinhua Finance/MNI China Business Sentiment Survey show that interest rates may be informally edging up for companies, despite the benchmark interest rate remaining unchanged. The index for interest rates rose to 60 in January from 50.9 and 47.6 in the previous two months. Any reading of above 50 indicates a consensus that rates are rising, or likely to rise.
Business conditions otherwise appear to be good, with a steady flow of new orders to manufacturers and a surge in production and rising employment.
According to the analysts at Barclays Capital, the rise in interest rate expectations probably reflects the higher interest rates that banks are charging each other to borrow money. And when the interbank rate is higher, there’s obviously little point in banks discounting it for their customers. Chinese banks have the flexibility to set interest rates in a range of between 0.9 to 1.7 times the benchmark.
There are two implications of the piece of data. The first is that banks are becoming more cautious about their loanbooks and the second is that banks have already adjusted interest rates upwards anyway, reducing the pressure on the central bank to hike rates in the near term.