China economy recovering, bad debt risks dismissed

Sun Nov 11, 2012 8:46pm EST
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By Aileen Wang and Kevin Yao

BEIJING (Reuters) - Comments by China's two top banking officials playing down the risks of bad debt in the banking system provided the latest upbeat signal from Beijing suggesting seven straight quarters of slowing growth have ended.

Markets will be looking for the remarks, from Central bank governor Zhou Xiaochuan and bank regulator Shang Fulin on Sunday on the sidelines of a congress to anoint a new leadership, to be backed up in coming days by solid lending data.

If so, that will close out a series of reports that have raised market expectations the worst is over for the world's second-biggest economy, although analysts say longer term China's new leadership will have to push reforms to ensure the country meets the goal outlined by outgoing President Hu Jintao to double 2010 GDP by 2020.

"Right now, bank profitability is relatively strong and they have conditions to increase provisions for loan losses and write off some bad loans to prevent future risks," Shang, chairman of the China Banking Regulatory Commission, told a news conference.

Bank lending data has become China's most closely-watched economic statistic in recent months as investors try to judge the likely pace of new investment projects Beijing is approving to prop-up growth in what is the world's fastest expanding major economy even if it is on course for its slowest year since 1999.

A pick up in growth from China would provide welcome news in the West, where industrialized economies are struggling following the debts built up during the global financial crisis. Japan on Monday said its economy shrank in the third quarter and the euro zone is widely seen as in recession.

The exposure of banks to high risk ventures, particularly in the property sector and outside regular lending channels in off-balance sheet "shadow banking" transactions, have gnawed at investors and worried ratings agencies.

Shadow banking in the United States focused on property has been widely blamed for triggering the global financial crisis.   Continued...