What are some of the issues and challenges facing the Chinese banking sector in general, as of mid-2008?
• During the first seven months of 2008, restricting lending, and reducing excessive liquidity have been major priorities. Banks’ reserve ratio requirement was recently hiked up again, the fifth time in one year. This move is specifically directed at controlling the growth in lending. Toward the end of July, the “stop-go” policy reversed itself as the authorities came to realize that the SME sector, which should be adding the most growth to the economy, had been drastically hit by the tightened loan policy. • According to the central bank, annual credit growth has slowed, from 18% to 15%, but working against this is the continual accumulation of foreign currency, an inflow that suggests the more rapid appreciation of the RMB currency this year, which is in turn aggravating the excess liquidity problem. • The central bank has been unwilling to raise interest rates again after a succession of such moves. According to some economists, the investment rate remains high because interest rate
