Don’t panic over liquidity in China

AXA Investment Managers (AXA IM) has told investors not to panic over fears of credit crisis in China, following a second liquidity squeeze in the inter-bank market.

AXA IM emerging Asia economist Aidan Yao said that the People’s Bank of China (PBC) has the intention and capacity to deal with any funding pressures before they degenerate into a crisis and said he believed that the Chinese authorities will seek to maintain a stable macro environment for structural reports. Yao commented: “The PBC understands that rapid credit expansion and leverage build-up are unsustainable, and monetary policy is not the right tool for dealing with deep-seated structural issues.” He added that structural reforms to tackle fundamental challenges in China could slow credit expansion and GDP growth. He went on to say that improved external demand and robust consumption growth could help Chinese authorities achieve their 7.5% growth target.

Prior to joining AXA IM, Yao, a Chinese citizen, was seconded to the Hong Kong Monetary Authority by the Reserve Bank of New Zealand, where he had worked as an economist and senior financial market analyst.