Chinese banks could default on WMP repayment

Some US$246 billion in WMPs maturing by end-June.

Fitch Ratings said tight liquidity in China might affect the ability of some Chinese banks to repay US$246 billion of wealth management products maturing between now and the end of the month.

China’s interbank rates hit an all-time high on June 20, in part owing to a new government strategy to rein in the growth of shadow finance by squeezing the supply of funds.

Pressure has eased somewhat, however, but Shanghai’s main stock index fell to its latest six-month low on June 21 on continued worries about tight liquidity and economic growth.

Fitch said it expects credit extension in China this year to be on par with 2011-2012 but said there is significant scope for the reality to be below forecast. It also projected a credit deceleration in the second half that will create a further drag on economic growth, which has been slowing down steadily since early 2010.