China loan slowdown comes amid surging earnings

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The People's Bank of China headquarters. Photo: Reuters/Jason Lee

While analysts digest stronger-than-expected Chinese GDP figures released Tuesday, some are seeing signs that growth may be ebbing. The 6.8% first quarter GDP growth beat expectations of 6.7%, thanks to in part to strong consumer spending. But slowing retail sales compared with a year earlier prompted some speculation of a looming slowdown.

Looking at the economy from another perspective, one metric shows that a wide swath of Chinese companies are in great shape. Earnings before interest, taxes, depreciation and amortization (EBITDA)  among Shanghai Composite firms are surging, one apparent reason for China’s slowdown in debt growth over the past several years.

Chinese lending falls as earnings rise

The People’s Bank of China also signaled late Tuesday that it might be easing off the deleveraging campaign a bit, reducing reserve requirements for financial institutions by 1%. That, according to The Wall Street Journal, effectively frees up more than US$200 billion in funds to lend or repay short-term loans. This shouldn’t, however, be confused with a reversal of the targeted deleveraging campaign, which has a laser focus on removing risky, off-balance-sheet debt.

Beijing appears to be bracing for a bit of a slowdown, but Chinese firms look to be in great shape.

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