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POLITICAL ECONOMY
Japan's economy shrinks, raising fears of recession
by Staff Writers
Tokyo (AFP) Nov 12, 2012


China bank lending slows further in October
Beijing (AFP) Nov 12, 2012 - Chinese banks lent less money for a second straight month in October, data showed Monday, as the country's banking regulator acknowledged that bad loans have spiked this year.

The lenders gave out 505.2 billion yuan ($81 billion) last month, the People's Bank of China said in a statement, down from 623.2 billion yuan in September and 703.9 billion yuan in August.

The figure was lower than analysts expectations of 590 billion yuan, according to a median forecast of 11 economists surveyed by Dow Jones Newswires.

China has been encouraging bank lending to bolster economic growth, which has slowed for seven straight quarters and hit a more than three-year low of 7.4 percent in the third quarter hurt by weak demand overseas and at home.

Policymakers have cut interest rates twice this year and trimmed the amount of cash banks must place in reserve three times since December as they try to pump up growth.

Economic data for October has fuelled optimism that the slowdown has bottomed out, but concerns are also rising over a surge in bad loans in the banking system.

Shang Fulin, chairman of the China Banking Regulatory Commission, told a news conference Sunday that non-performing loans had risen since the start of the year.

He cited "changes in business operations in some sectors", without elaborating, but emphasised that risks are controllable.

"The CBRC will try to urge the commercial banks to improve their risk management," he said on the sidelines of the Communist Party's 18th Congress that is set to anoint new leaders for the next 10 years.

"For the non-performing loans, we will monitor the real time situation to expose and deal with possible risks and potential dangers in a timely manner and we will also ensure that we have enough provisions to cover the risks."

Analysts have said that the weak bank lending figures do not reflect the country's true lending situation, which includes other forms of credit.

A report issued by Fitch Ratings last week argued that broad credit, which includes shadow and offshore sources omitted from the central bank's lending data, was on track to exceed one-third of the national economy this year.

"Rising leverage either will swamp borrowers' ability to repay, or banks' funding and capital needs will fall short of existing resources," Charlene Chu, a Beijing-based analyst with Fitch, warned in the report.

Japan's economy shrank in the latest quarter, data showed Monday, raising fears it could slip into recession due to financial turmoil in Europe, a strong yen and a painful diplomatic row with China.

The world's third-largest economy contracted 0.9 percent between July and September from the previous three months, equivalent to an annualised 3.5 percent drop which Prime Minister Yoshihiko Noda described as "severe".

The fall is yet more bad news for an economy that was already showing signs of strain, with tumbling factory output and the worst September trade figures in three decades.

Commentators warned the future is bleak, with a litany of worries including the Chinese consumer boycott of Japanese goods caused by a territorial row, an export-denting strong yen and the expiry of incentives for car buyers.

Noda -- under pressure to call a general election -- told parliament on Monday he would work "with a sense of crisis" to address the country's economic woes.

"I have also been instructing ministers concerned to draw up an economic package, possibly this month," Noda said, as he pointed to the first $5.0 billion tranche of a previously-announced stimulus.

The package came on top of measures taken in the wake of last year's quake-tsunami disaster, when Tokyo tried to spur growth by offering incentives for fuel-efficient vehicle purchases and measures to rebuild the northeastern coastline after the disaster.

While the latest figures beat market expectations of a 3.9 percent annualised contraction, it was the sharpest decline since last year's crisis, with household and company spending as well as exports all slowing.

Another three months of shrinkage in the October-December quarter would mean Japan has slipped back into a technical recession, which is defined as two successive quarters of contraction.

Economy minister Seiji Maehara pointed to those fears on Monday with comments likely to heap pressure on the Bank of Japan for further stimulus.

"We cannot deny the possibility that the Japanese economy has entered into a recessionary phase," Maehara told a press briefing.

Last month, the Bank of Japan unveiled $138 billion in fresh monetary easing after central banks in the United States and debt-hit Europe also announced fresh measures to fuel growth.

The central bank, which also said it would provide new loans to banks, had been under pressure from politicians calling for urgent action. It was likely to face renewed calls for stimulus in light of the growth data Monday.

Japan's trade picture has become increasingly bleak as exports to China, especially in the car market, suffer because of a consumer boycott.

This was sparked by Japan's nationalisation in September of an East China Sea island chain claimed by both Tokyo and Beijing.

RBS Securities chief Japan economist Junko Nishioka told Dow Jones Newswires that the economy was unlikely to show growth again "until the April-June period at the earliest".

The strong yen is a particularly acute problem for major exporters such as automakers, with Honda and Nissan recently warning their full-year profits would shrink because of the surging currency and the China dispute.

Last month, Japan posted its worst September trade figures since 1979 due partly to the China row as well as weakness in the United States and Europe, two key export markets.

US-bound shipments were up just 0.9 percent in September, while exports to debt-hit Europe dived 21.1 percent. Exports to China were down 14.1 percent.

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