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China Beige Book Shows Fewer Firms Borrowing as Rates Rise

China Beige Book Shows Fewer Firms Borrowing as Rates Rise
The latest China Beige Book showed fewer retailers reporting revenue growth along with a “sharp” pullback in service industries. Photographer: Tomohiro Ohsumi/Bloomberg

June 25 (Bloomberg) -- Chinese bankers are reporting increased lending while fewer companies are taking out loans, an incongruity that helps explain the recent increase in borrowing costs, a private survey showed.

The share of companies reporting loan applications in the second quarter fell 13 percentage points from the previous period to 38 percent, the survey from New York-based China Beige Book International said yesterday. The proportion of banks showing higher lending to businesses rose 10 percentage points to 45 percent, indicating that “credit appears to be concentrated on a few borrowers,” according to the report.

The lending disparity is part of a picture of slowing economic expansion across the country, according to the survey, which began last year and is modeled on the U.S. Federal Reserve’s Beige Book. The report’s findings added to signs of a cash squeeze in financial markets that pushed interbank borrowing costs to a record last week.

“Our data are clear that there has been no flood of credit; on the contrary -- which helps explain the recent Shibor spikes,” the report said, referring to the Shanghai interbank offered rate. China’s seven-day repurchase rate rose today, according to a fixing by the National Interbank Funding Center, after benchmark money-market rates tumbled for two days from record highs.

Inflation Concern

Inflation in wages and property is “still notable,” which indicates “another quarter of policy restraint and no large amount of new liquidity entering the economy,” according to China Beige Book.

The survey, based on responses from more than 2,000 companies and banks across the country between May 13 and June 3, is divided among eight regions.

The latest China Beige Book showed fewer retailers reporting revenue growth along with a “sharp” pullback in service industries. An increased number of retailers said at least 60 percent of sales were to consumers.

Capital spending rose in transportation and was unchanged in manufacturing while weakening in retail, services, real estate and mining, according to the report. The property market cooled, while the labor market was “stable,” China Beige Book said.

Loan Rates

Interest rates on loans averaged 7.10 percent, up 34 basis points from the previous quarter, while bond yields of 7.11 percent were up 80 basis points, according to the report.

The cash squeeze has unsettled corporate treasurers and led to a slump in domestic bond sales. At least five companies in China canceled or delayed scheduled bond sales of 32.1 billion yuan ($5.2 billion), according to statements posted online.

State-owned policy lender China Development Bank Corp. said it scrapped a sale of as much as 20 billion yuan originally planned for today, without giving detailed reasons, according to a statement posted on Chinabond.com.cn, the government bond clearing house website. Chongqing Shipping Construction Development Co. said it postponed issuing 500 million yuan of five-year securities because of recent market volatility.

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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