Flash: Messages from Chinese Premier Li's speech on credit growth - Nomura

FXstreet.com (Barcelona) - Nomura economist Zhiwei Zhang notes that the Chinese Premier Li, has given a speech on credit growth overnight.

he begins by noting that the State Council held a meeting on 19 June to discuss credit policies, and Premier Li indicated that the government should provide more credit to high-end manufacturing industries and strategically important new industries and restrict further lending to industries that face severe overcapacity problems. Zhang adds that he did not mention the liquidity problem at the meeting, but reiterated the importance of containing financial risks.

He feels that these messages reinforce his view that policy and liquidity will remain tight, at least before the Q2 data release on 15 July. he writes, “We do not think the People's Bank of China will cut the reserve requirement ratio to increase the liquidity supply. It would be inconsistent with recent policy signals and the message from Premier Li.” Further, he notes that Industries that face overcapacity problems will likely go through a tough restructuring in H2, and he expects these industries to experience corporate defaults. He finishes by maintaining that his view that risks to China's growth outlook have increased.