ANZ has eye on China risk

Picture / Bloomberg

As fears of a Chinese credit crisis deepen, ANZ's operation in the country is reducing exposure to struggling industrial sectors and "cherry-picking" higher quality customers, says one of its top executives.

Cecile Wu, ANZ's head of resources, energy and infrastructure in China, said the key focus was risk control rather than lending growth.

"We need to be prudent and take a good credit approach to deal with this [economic] situation," she said in an interview at the bank's Shanghai headquarters. "And we're also reducing our exposure in the over-capacity industries like iron, steel and gas by a very significant amount."

The Economist magazine estimated this month that China's debt-to-GDP ratio had reached almost 260 per cent, up from 150 per cent in 2008.

Much of the heavy infrastructure and industrial investment that drove meteoric Chinese economic growth over that period was funded by an epic credit binge.

But despite policies aimed at rebalancing the economy towards consumption-led expansion, Beijing has once again been resorting to credit-driven stimulus this year amid slowing growth.

New lending surged by 6.2 trillion yuan in the first quarter of this year, a pace more than 50 per cent faster than the same period last year, according to data in the Financial Times.

Official figures suggest non-performing loans hit a 10-year high of 1.27 trillion yuan last year, roughly 1.8 per cent of total lending.

Some analysts, however, put the proportion much higher, possibly 8 or even 9 per cent.

There are growing concerns that China's rising debt will inevitably lead to a bust - be that a major financial crisis or a less spectacular descent into the kind of economic malaise that has plagued Japan.

Wu said a delegation from Australia's banking regulator had recently visited ANZ China.

"We explained to them what we have done in today's challenging environment," she said. "I think [after the visit] ... they felt there was less chaos than they expected."

ANZ's acting chief economist for greater China, Raymond Yeung, said the service sector was booming and the country would not have a "hard landing", but debt levels were a worry.

"This is a key challenge," Yeung said. "This is one of the risks that we're seeing." He said the Chinese Government's main economic policy directives this year were aimed at reducing debt, "destocking" in the real estate sector and addressing industrial overcapacity.

"It's obviously not easy to deal with these three tasks."

ANZ became locally incorporated in China in 2010, part of the bank's strategy launched by former chief executive Mike Smith in 2007 to become a "super regional" bank in the Asia Pacific region.

That strategy has come under question from analysts, though, because of low returns and high costs.

ANZ's new chief executive, Kiwi Shayne Elliott, has said the bank remains committed to Asia but needs to reassess where and how capital is deployed.