Crunchier Chinese credit?

12 December 2007 By Martin Hutchinson

Retail sales were up 18.8% in the year to November, suggesting the Chinese savings rate may be declining. That could spell trouble for banks, which need those savings to finance rapidly expanding lending. With the central bank draining liquidity, money may tighten fast.

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Chinese retail sales in November 2007 were 18.8% above the yearearlier period, compared with 13.4% in 2006. The consumer price index was up 6.9% over the same period.

The highest category increases were for grain and cooking oil (up 48%) and meat and eggs (up 45%) but automobile and jewellery sales rose 35% and 39.2% respectively over November 2006.

Chinese automobile sales were up 23.2% in the eleven months to November, at 7.95m units, of which 5.66m were passenger cars (up 22.9%) and 2.29m were commercial vehicles (up 24.1%).

China has increased interest rates four times during 2007, raising the one year bank lending rate to 7.29%. It also increased bank reserve requirements to 14.5% as of December 25, 2007 removing about RMB 380bn ($51bn) in liquidity from the banking system, about 1.5% of outstanding RMB loans.

Context News

Chinese retail sales in November 2007 were 18.8% above the yearearlier period, compared with 13.4% in 2006. The consumer price index was up 6.9% over the same period.

The highest category increases were for grain and cooking oil (up 48%) and meat and eggs (up 45%) but automobile and jewellery sales rose 35% and 39.2% respectively over November 2006.

Chinese automobile sales were up 23.2% in the eleven months to November, at 7.95m units, of which 5.66m were passenger cars (up 22.9%) and 2.29m were commercial vehicles (up 24.1%).

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