More Proof of China’s Political Dawdling

More proof of China’s political impasse and a dithering central bank.

From Bloomberg,

China’s slower-than-forecast cuts in banks’ reserve requirements show authorities are reluctant to shake their concern inflation will quicken, three months after Premier Wen Jiabao shifted priorities to boosting growth.

China has left the reserve ratio for the biggest banks at 20 percent since mid-May while lowering interest rates in June and July, bucking forecasts from HSBC Holdings Plc and Societe Generale SA that the government would build on three ratio reductions since Nov. 30. Industrial-production and loan data for July that missed estimates last week fueled further speculation the People’s Bank of China would cut the ratio as soon as Aug. 10.

The hesitation risks increasing the odds that growth will decelerate for a seventh quarter just as Communist Party leaders gather for a once-a-decade power handover. The PBOC said this month that price gains may rebound after August and a newspaper published by the institution said more reserve-ratio cuts would backfire by increasing inflation expectations.

China’s central bank’s partial or reluctant interventions have not been enough to provide the opiate for the steroid starved markets.

More from the same article,

The PBOC has stepped up the use of another tool to pump temporary funds into the financial system. The central bank has injected 826 billion yuan ($130 billion) since late June by offering seven- and 14-day reverse-repo contracts, according to data compiled by Bloomberg. The previous reserve-ratio cut of 50 basis points probably released 450 billion yuan into the financial system, according to Goldman Sachs Group Inc.

The actions have failed to produce a sustained increase in credit. New local-currency loans tumbled 41 percent last month to 540.1 billion yuan, the lowest since September, missing all 30 estimates in a Bloomberg News survey…

Separately today, Chinese banks’ bad loans increased for a third straight quarter for the first time in eight years, a report from the China Banking Regulatory Commission showed. Bad loans surged at all types of banking institutions, including the largest state-owned lenders, rural banks and foreign banks, the regulator said.

Last week’s rally seen inn China’s Shanghai index appears to be faltering anew. Today the major bellwether lost over 1%.

The uncertainty from the China’s political directions and economic slowdown should not be discounted.

Be careful out there.