China to cut credit in move to reduce over-capacity
CHINA plans to cut off credit to some companies to force consolidation in industries plagued by over-capacity as it seeks to end the economy's dependence on extravagant investment funded by cheap debt.
The State Council laid out broad plans to ensure banks support the kind of economic rebalancing China's new leadership wants.
President Xi Jinping and Premier Li Keqiang have flagged that the rapid growth of the past three decades needs to shift down a gear.
"The guideline shows China's policymakers will focus more on economic restructuring to stabilise the economy," said Li Huiyong, an economist at Shenyin Wanguo Securities.
Yesterday, China Rongsheng Heavy Industries Group, China's largest private shipbuilder, appealed for financial help from the government after cutting its workforce.
The State Council said it would ensure credit kept flowing to businesses it thought had competitive products, but it would work with banks to oversee a gradual winding down of other businesses.
"The government will adopt policies based on the situations in the industries plagued by over-capacity," it said.
Explosive credit growth is seen by analysts as one of the biggest risks to China's economy, along with a frothy property market. (Reuters)