China leads fall in foreign lending to emerging markets: BIS

AFP - Cross-border lending, key to help fuel economic growth, fell to emerging markets at the start of the year, led by China, the Bank for International Settlements said yesterday.

The $76 billion decline -- a 9-percent fall at an annual rate -- in the first quarter took the outstanding drop to $3.2 trillion to emerging market countries, the BIS said.

Emerging economies, such as Brazil and Russia, had until recently been responsible for most growth in the global economy.

But a plunge in oil and other commodity prices that has hobbled many emerging nations, as well as fears of a hard landing in China, have led to an outflow of 
foreign funds.

The BIS, which is owned by and serves central banks, said the drop in foreign lending to China drove the aggregate quarterly change in lending to emerging market economies as a whole and to emerging Asia in particular.
“Since hitting its all-time high at end September 2014, cross-border bank credit to China has contracted by a cumulative $367 billion,” or by a third of the total, said the BIS.
China expanded by a better-than-expected 6.7 percent in the second quarter, but the key driver of the global economy is still expected to slow to the lowest in a quarter century as Beijing tries to rebalance the nation’s economy. China is seeking to restructure its economy to make the spending power of its nearly 1.4 billion people a key driver for growth, instead of massive government investment and cheap exports.
But the transition has caused growth to sputter. The BIS also noted an increase in lending to governments.

The increase may partly be the result of efforts by regulators, spearheaded by the BIS, for banks to hold a greater amount of safe assets. Fears of deflation and market volatility have also sparked demand for government bonds, seen as a safe haven, which have pushed returns for investors on some debt into negative territory. The BIS said banks holding of government bonds rose by $234 billion in the first quarter, while loans rose by just $137 billion.