No Credit Crunch in Asia
April 02, 2008 | BY
clpstaff &clp articlesThe global credit crunch and the PRC's overheated economy gives cause for investor uncertainty but Asia, at the moment, is not affected by the credit…
The global credit crunch and the PRC's overheated economy gives cause for investor uncertainty but Asia, at the moment, is not affected by the credit crisis, according to a Merrill Lynch analysis report.
“Global credit markets are in trouble, but there are few signs of a credit crunch in Asia, in our view,” said TJ Bond, economist at Merrill Lynch. It is true that the credit crisis has now spread to many regions outside of the US, but only 4% of outstanding credit is accounted for in Asia, he said.
“Compared to the US, we think Asia stands at very different points in its investment, credit, and housing cycles,” Bond said. “The market for domestic credit is not globalized, and not subject to contagion as the US credit cycle turns down.”
The report described that despite the way many markets have or may become victims of the credit crisis, the market for local bank credit is not at risk. Since the macro tightening of 2004, credit in the PRC has not been keeping pace with the gross domestic product [GDP]. Both volume and price, according to the report, are responsive to trends in domestic monetary policy.
The report also noted that China's Premier Wen Jiabao, in the opening ceremony of the 11th National People's Congress, only mentioned the word “overheating” once, showing the government's prudence in presenting the current economic situation in the PRC to the public.
In addition, Wen's speech on the country's future economic prospect is positive. His commitment on the government's effort to follow careful fiscal policy and tight monetary policy showed his determination to achieve the ultimate policy goal of ensuring stable and relatively fast economic growth, said economists at Merrill Lynch. Policies, they predicted, will become more flexible and less stringent given the uncertainties within and outside of the PRC.
“We expect a slowdown in 2008; however, strong consumer momentum should help underpin demand for credit. Chinese consumption was strong in 2006–2007, and we do not expect a slowdown in 2008,” says the report.
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