Chinese share scare may further restrict lending to metal companies

Despite consecutive relaxations in monetary policy, Chinese metal companies have been suffering from tight liquidity this year, and a recent equity rout may only worsen the situation in the coming months.

More liquidity but hungrier metal companies The People’s Bank of China (PBoC) slashed interest rates four times between November 2014 and July 2015, during which time it also reduced the bank deposit reserve ratio requirement, along with other efforts to inject funds into the banking system to beef up the local economy. In response to the liquidity floods and repeated calls from Beijing for a bull run in the stock market, the Shanghai Composite Index surged by a staggering 70% for the period between the end of 2014 and June 12 this year. While Chinese banks are banned from buying stocks directly, there are still many ways for bank funds to enter the stock market – including asset management products, private allocation and equity-collateralised lending. By the end of March, China’s outstanding yuan deposits grew by 10.1% year-on-year to 1.249 trillion yuan. The growth was 2 percentage points slower than that at...

Published

Linda Lin

Rena Gu

Shivani Singh

Kiki Kang

August 04, 2015

13:22 GMT

Shanghai