Yuan faces 'Liquidity Correction'

It seems a lot that the Chinese Yuan is now facing the heat of excessive liquidity. With so much stimulus and easy lending the economy is at a juncture of possible downturn hence more contractive measures are being taken to reverse the process. China’s Premier Wen Jiabao yesterday said China will manage the pace of credit growth and the nation’s chief banking regulator, Liu Mingkang, said in an interview today that some banks were asked to reduce lending after they failed to meet capital requirements.
“We have a number of regulatory requirements to ensure prudent supervision,” Liu said. “For those that failed to meet these standards, we told them to limit lending.”
Chinese banks extended a record 9.59 trillion yuan ($1.4 trillion) in new loans last year to help finance the nation’s 4 trillion yuan stimulus package, stoking concerns of asset bubbles and worsening credit quality.
“In terms of monetary policy, China’s overall trend is heading for tightening this year to keep economic bubbles from bursting, but officials are also trying to sustain and expand the economic growth with budgetary tools,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “That’s a difficult and narrow path to walk through.”
However the slated rules still predict this as a possible asset bubble that can burst any time. With the record spending in the past year maybe a slight correcting might derail if something unlikely is to happen.
China is still trying to keep its pace with respect to the dollar nearly equal to the paramount number of 6.83 per dollar since 2008 however recently there has been a huge change of 21 percent of the same, henceforth the credit is being tightened for any form of financial shock if Chinese economy decided to appreciate to its original standards wiping many of its indigenous economies.


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