Chinese Economist: Monetary Policy Is Not The Reason For Small Business Slowdown

china bank

A Chinese foreign exchange regulator fired back at critics who have been blaming monetary tightening for the credit shortage woes of small and mid-sized businesses in the country.

Via Marketwatch:

Wang Daxian of the Shanxi branch of the State Administration of Foreign Exchange wrote in an essay in the Shanghai Securities News that the supply of credit is appropriate and liquidity in the market hasn’t been substantially tightened.

Wang pointed to other factors behind the problems of small and medium sized companies, noting that China’s major investment projects are usually undertaken by state-owned companies, mainly those directed by the central government. The demand for credit from these big state projects often crowds out demand from the private sector, particularly for smaller firms.

So it isn’t the state’s fault that private businesses can’t compete with the state because of state regulations.

China’s central bank has raised bank reserve requirements 6 times this year in an effort to combat inflation. In the latest hike (June 20th), the requirement for most large banks reached 21.5%.

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