China Stops Loans for Six Industries

The Chinese government bulletin Inmin-Ilbo reported on May 1 that China’s Committee of Bank Supervision ordered banks to stop loans aimed at unsound investment and to withdraw loans that do not accord with national adjustment and industrial policy to calm down the country’s overexerted economy.

This was the first time that the Chinese government bulletin Inmin-Ilbo made a concrete report on the government’s policy concerning control of its overburdened economy.

According to the Inmin-Ilbo, the Committee of Bank Supervision directed banks to arrange five grades for loan qualification in order to suppress investments of fixed assets and to reduce banks’ losses from loans.

Particularly, the Committee named the steel, aluminum, cement, real estate, and automobile industries as such industries where unsound investments are popular, and in fact recommended the withdrawal of loans aimed at investments in these industries.

Meanwhile, the Committee stressed giving priority to energy industries, such as coal, electric power, and oil, and public works, such as transportation and waterworks.

This Committee, whose authority of supervision and investigation over banks has been strengthened, directed the implementation of scientific administering techniques in banks’ deposits and loan matters.

Meanwhile, China’s Committee of National Development decided to review the construction of large shopping centers and golf courses in an effort to suppress increasing investments of fixed assets. Some are predicting that People’s Bank of China, the country’s central bank, will take drastic action by raising its annual interest rate of 5.31 percent by 0.5 percent and raising its interest rates for deposits of 1.98 percent by 0.25 percent beginning after the Labor Day holiday.

Yoo-Seong Hwang yshwang@donga.com