|In China, The World's Second Largest Economy, Banks Run Contrary To Government Wishes To Cut Interest Rates To Boost The Economy|
|Friday, October 12, 2012 02:58|
China’s banks are under pressure from the government to lower their interest rates to boost China’s flagging economy but the banks are resisting. China is the world’s second largest economy and its economic slowdown is already taking a toll on global economic growth.
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China’s central bank began allowing lenders to offer discounts up to 30% below benchmark rates.
The banks are only offering discounts of 10% and only then to their best corporate clients.
Growth in China’s gross domestic product (GDP) has declined for six consecutive quarters.
The central bank is also limiting credit expansion by imposing quotas on loans. This illustrates the conflicts within China to increase funding for infrastructure products while reducing loan defaults.
Local governments along with the country’s top planning agency want lower interest rates to fund projects. At the same time, they are trying to avoid a repeat of the credit boom after 2008 that led to inflation and three consecutive quarters of bad loans.
It was the longest period of deterioration in eight years. China’s GDP grew at the slowest rate in three years during Q2 2012. Its economy may expand during 2012 at the slowest rate since 1999.
Meanwhile, China and Japan are trying to set up talks to diffuse the tension over Japan’s purchase of the East China Sea Islands last month.
Prolonging the crisis—the worst since 2005—will endanger trade ties between the world’s second and third largest economies.
China agreed to hold the talks after Japan’s Prime Minister warned that both economies would suffer if negotiations ceased.