25 August, 2009

Walking a tightrope

STRATFOR has an interesting article (subscription required) that discusses the China's proposed change in banking regulations.  They are changing accounting rules to no longer allow certain subordinated loans to be counted as part of a bank's reserves.

Why should anyone care?  Because it's a sign of how nervous the Chinese government is about a growing financial bubble.  They need to encourage lending to have any chance of meeting the official goal for growth in GDP.  At the same time--and despite the fact that there's already a relatively high 12 percent reserve limit--there's a growing fear that the money that's being going out from banks has been going to projects that aren't likely to pay off.  China has its own bubbles, and they're growing.  Can they deflate the bubbles without losing growth?

Sounds familiar, doesn't it?  Perhaps they should talk to Ben Bernanke.

China: A New Banking Regulation in the Works | STRATFOR

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