China: Carrot-and-stick

CHINA: CARROT-AND-STICK

Since the beginning of the year, the Chinese government has continued its effort to carry out various items on the reform agenda, particularly on fine-tuning the structure of the Chinese economy. While various aspects of reform are underway, growth is by no means forgotten. With plenty of signs showing lackluster growth momentum in this year, it is believed that the government is likely to introduce stronger stimulus to sustain economic growth. More specifically, the continuation of targeted-stimuli is expected.

On the credit quality side, in-line with the suggestion from our China payment survey report, non-performing loan (NPL) has been rising in China, as the absolute amount of NPL soared 28.7% YoY in 1H2014. The growing NPL is leading to concerns over lending qualities, while the cost of financing remains to be a concern to various sectors and smaller companies that lack access to credit facilities.