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(Adds more comment, details from annual report)
SHANGHAI -(Dow Jones)- China's banking industry regulator said Monday the country's economy faces growing downward pressure as the global financial crisis has yet to run its course.
In its annual report, the China Banking Regulatory Commission said the banking industry faces "serious" credit and market risks as the domestic economy encounters its "most difficult year in the new century."
The regulator's warning against credit risks doesn't come as a surprise given mounting concerns over the future health of banks following China's explosive lending growth in the first quarter of this year.
However, CBRC's gloomy assessment of the Chinese economy in its 2008 annual report looks slightly outdated amid fresh signs of a recovery, such as a continued expansion of domestic manufacturing activities.
China's manufacturing activity expanded in May for a third consecutive month, mainly due to the effect of the government's stimulus package, the official Purchasing Managers Index issued Monday showed.
China's PMI, a gauge of nationwide manufacturing activity, dropped to 53.1 in May from 53.5 in April, the China Federation of Logistics & Purchasing said.
The index has stayed above 50 for three straight months, after hovering below that level for five consecutive months. A PMI reading above 50 indicates growth, while a reading below 50 indicates contraction.
That said, the regulator's caution over the banking industry's outlook remains valid.
China's contracting industrial output and withering exports have slashed earnings growth for many firms and forced a number of them to close, CBRC said in the report.
"Credit risk remains the biggest risk for the banking industry," the regulator said.
Under the government's explicit encouragement to stimulate the economy, China's banks extended 5.17 trillion yuan ($757.15 billion) of new loans in the first four months of this year, more than in all of 2008.
China's government has acknowledged risks from the lending boom but says the boost to the economy is worth it. "In a situation of financial crisis, rapid growth in lending does more good than harm," deputy central bank governor Yi Gang said in a speech last month.
He added that "we should also consider the sustainability of the rapid growth of credit and the possible adverse impact."
Nonperforming loans now account for about 2% of the total in the Chinese banking system, a relatively low figure. That figure won't rise soon, as analysts believe Chinese banks are now rolling over problem loans rather than calling them in. Indeed, regulators in January specifically instructed banks to support companies that had been affected by the downturn.
In the annual report, CBRC also sounded wary of the global economic slowdown and its implications for the world financial markets.
"The global financial system remains weak as the financing environment has been severely damaged and credit asset quality continues to deteriorate," it said.
"The implementation of massive economic stimulus plans by governments around the world has led to widening fiscal deficits in the U.S. and Europe, forming a latent risk of stagflation for the global economy," it added.
-By Shen Hong, Dow Jones Newswires; 86-138-18971491; hong.shen@dowjones.com
(Rose Yu contributed to this report)
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Publié le 01 Juin 2009 Copyright © 2009 Dowjones

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