Credit crisis “Made in China”
The China Construction Bank, the country's second largest bank but its top mortgage lender, expects its profits to slow down considerably for the rest of the year and in the second half and next year, well below the 71 per cent gain in the first half of this year.
“In terms of net profit, the robust growth seen in the first half had already reached the peak of the cycle,’ chief financial officer Pang Xiusheng said yesterday. “We expect earnings will no longer sustain such growth momentum in the next year or two.”
For Pang the sector is losing steam as a global economic slowdown and tightening of the country's monetary policies to check inflation hit bank earnings.
Trade experts told AsiaNews that China “is experiencing the same problem as the United States with regards to subprime credit. In China housing prices have shot up as a result of easy credit offered by the banks; many people took advantage of this to invest in real estate. But as inflation raises unemployment levels, loans are not being repaid.”
China Life Insurance, the nation's biggest insurer, also paints a bleak picture. Its vice-president Su Hengxuan explained that as the US subprime crisis reverberates in China, the Shanghai stock exchange is penalised.
“The mainland stock market is increasingly linked to overseas markets and the problem from the credit crunch has not peaked yet,” he said. “The worst is yet to come.”
Investment income for China Life fell 47 per cent in the first half.
Likewise, since hitting a peak in October last year, the Shanghai Composite Index has lost 61.42 per cent. This makes it the world's worst performer this year.
The forecast for Hong Kong is not much better. Data show that its gross domestic product growth decelerated to 4.2 per cent in the second quarter, the slowest growth rate since the third quarter of 2003.
Home prices could tumble by 20 to 30 per cent from the peak earlier this year.
Investments remain sluggish and the current economic crisis is slowing down world economies.
For analysts the slowing economy is likely to extend its retreat for the next 15 months.