Credit & Capital

Foreign Banks Winnow China Portfolios

Lending to developing economies as a whole dropped $142 billion in the third quarter of 2015.
Katie Kuehner-HebertJanuary 21, 2016

Loans to Chinese borrowers by foreign banks fell 17% in the third quarter of 2015 to $119 billion — leaving foreign bank lending to the world’s second largest economy at $877 billion, the lowest level in two years, the Bank for International Settlements said Thursday.

In another report released Wednesday, The Institute of International Finance said that Chinese investors and their foreign counterparts have also been withdrawing funds from the country over recent months, leading to steady declines in its still substantial foreign exchange reserves. Investors withdrew a record $735 billion from large developing economies in 2015, with China accounting for the bulk of those outflows.

“Investors are increasingly worried that the authorities in China won’t be able to smoothly shift the economy from a credit-fueled model to one more reliant on consumption,” The Wall Street Journal wrote. “The country’s debt burden, excess manufacturing capacity, questionable data, and a series of recent policy missteps are fomenting concerns that a slowdown in the world’s second largest economy could turn into a nose dive.”

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The drop in foreign bank lending to Chinese borrowers was a main contributor to the $142 billion drop in lending to developing economies as a whole, according to the BIS. However, lending to developed economies fell only slightly, resulting in a cross-border bank credit decline by $151 billion during the third quarter — a smaller drop than in the second quarter.

Foreign banks also reduced their lending to borrowers in other Asian countries amid concerns about slowing growth, the BIS said. Lending to Taiwan fell by $8.8 billion, lending to South Korea by $7.6 billion, and lending to India by $5.6 billion.

In other parts of the world, foreign banks cut lending amid tumbling commodity prices — by $6 billion in Brazil, $7 billion in Russia, and $900 million in South Africa.

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