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China credit constraints a positive step

Staff Reporter 3 minute read

The Chinese government's move to restrict credit growth among the nation's banks will strip volatility out of the economy, market analysts are predicting.

Global investment bank UBS chief economist Tao Wang yesterday told The Australian the Chinese government’s decision to tighten credit restrictions was not a knee-jerk decision and the tightening of credit will result in market sustainability.

According to Ms Wang, there was evidence that credit growth had been too rapid for the pace of economic expansion in China.

"Our view is that credit was too strong because of the aggressive behaviour of the banks in 2010 [sic],” she said.

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However, Ms Wang said this won’t stop the banks from trying to capture a bigger share of the market.

“The banks and the governments are going to keep playing that game. The banks are going to continue to want to lend more than each other... And the government will feel the need to keep banks on a tight leash.

“We will have that constant tug of war." She said.

Ms Wang said property investment would remain strong, predicting overall economic growth of 9 per cent in 2010.

China credit constraints a positive step
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