What Happens In Japan When China Stops Buying?

Hat Tip: EconompicData

China's banking regulator urges restraint in property lending

Jan 28, 2010

HONG KONG (MarketWatch) -- China's banking regulator said Wednesday it was concerned about potential risks to loan quality arising from the residential-property market, and called for improved lending oversight, according to reports.

The move comes amid growing concerns that non-performing loans could surge following a near-doubling in bank lending last year and another explosive surge in January.

The China Banking Regulatory Commission said Wednesday it had warned banks via a nationwide teleconference to control any rebound in non-performing loans, according to a Wall Street Journal report.

"The global economic and financial systems will continue to face difficulties in recovery and adjustment in 2010. Both the domestic and global macroeconomic and financial situations suffer from complexity and uncertainty, which has highlighted the need for scientific management in our banking industry," Dow Jones Newswires reported the CBRC as saying in a statement posted on its Web site.

Chinese banks are believed to have extended 1.45 trillion yuan ($212.4 billion) in new loans so far this year, according to recent estimates by Bank of America Merrill Lynch.

Some branches of Industrial & Commercial Bank of China Ltd., as well as those of China Citic Bank Ltd., have suspended new lending until February, according to recent reports.

However, ICBC reportedly said Wednesday it had not halted its lending.


But despite some market concerns of a sea-change in the lending environment, Merrill analysts said that the tightening movement underway in bank lending would fall short of a major shift in China's ultra-accommodative policy.

Comments:

Ultra accommodative lending policy in China is gradually coming to an end.  Regulators will soon be spooked by the amount of non-performing debt and, in my view, will react accordingly.  We anticipate that evidence of the next dip in the recession in the US will be apparent in a few months and Chinese authorities will tighten lending resulting in fewer exports.  At that point, imports from Japan should drop in response.
This begs the question - what happens in Japan when China stops buying? 
Our estimate is the deflationary cycle in Japan will be reinforced leading to extreme Quantitative Easing and an eventual Japanese collapse.