China’s central bank has asked lenders to rein in credit supply, as the surge of lending that sustained the country’s debt-fueled coronavirus recovery renewed concerns about asset bubbles and financial stability, reported the Financial Times.
New loan growth hit 16% in the first two months of the year. The People’s Bank of China responded in February by instructing domestic and foreign lenders operating in the country to keep new loans in the first quarter of the year at roughly the same level as last year, if not lower, according to FT sources with knowledge of the situation.
The directive could translate into a considerable drop in bank lending, the largest source of financing for the world’s second-largest economy, said the FT.
“Worries about a pandemic-driven recession are gone,” said Larry Hu, chief China economist at Macquarie Group in Hong Kong. “The top priority is to lower the economy’s debt burden.”