China banking crisis as trade finance lines pulled

With banks in China confirmed to have suspended new lending since 19 January, import orders for commodities and machineries are seen to be affected the most.

Although this year's $1.1 trillion lending limit for Chinese banks has already been agreed upon at the Central Economic Work Conference last December, importers and other firms were still caught off-guard. According to The Business Insider, Letters of Credit (LoC) became unavailable all of a sudden, disregarding prior agreements.

Analyst Yuan Tuck Siew of Axia said, "We believe that this will inevitably lead to delays or cancellations in China's imports. Import orders for commodities and machineries could be affected most. Some banks suggested that they would resume issuing LoC from February, but that would be too close to the Chinese New Year."

According to the report, the State Council is now watching the lending figures on a daily basis, instead of monthly. The Axia analyst said they would not be surprised if banks were imposed a monthly—and not quarterly as was done in 2008—lending quota.