Owner Haier looking at F&P Finance's 40 years of IP ahead of possible Chinese consumer credit rollout

By Gareth Vaughan

Fisher & Paykel Finance's consumer credit expertise could be used to help its parent enter the consumer credit market in China.

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June 6 – Bloomberg: “China’s banking regulator vowed to expand loans and cap borrowing costs, seeking to boost the supply of funds to the real economy as growth slows amid a clampdown on shadow financing. Lending to small businesses, major infrastructure projects and first-home buyers will be a priority, the China Banking Regulatory Commission said… To give banks more capacity to lend, the regulator may ease the ratio of loans to deposits by including some stable sources of deposits in the calculation, CBRC Vice Chairman Wang Zhaoxing said… The CBRC will also take measures to rein in bubbles in the nation’s real estate market because reliance of the economy on property and too much credit exposure to the sector could damage the financial system, he said.’”

Predictably, China is also focused on boosting the “supply of Credit to the real economy.” After allowing their Credit and economic Bubbles to run completely out of control, Chinese officials now confront a monumental task. They must attempt to rein in speculative Credit excess and financial fraud, while ensuring that the “real” economy receives sufficient Credit to stave off collapse. Acute addiction to copious cheap finance is a fundamental dilemma associated with drawn-out Credit Bubbles. An inevitable tightening of financial conditions (less Credit Availability and associated higher borrowing costs) exposes previous fraud, malfeasance and mal-investment – in the process spurring the self-reinforcing downside to the Credit cycle. 

China still retains an unusual capacity to sustain lending and Credit growth. Yet, at this point, only a more damaging “Terminal Phase” of excess is ensured. From my perspective, it will take an enormous amount of ongoing Credit to hold a nasty Chinese financial and economic downside at bay. This portends serious trouble for the Creditworthiness of the now behemoth Chinese banks as well as the sovereign.