The overnight Shanghai Interbank Offer Rate (Shibor) ended April at 1.69%, significantly lower than the 3.18% seen at the end of March. The trailing average rate for April is 2.07%, which means the short-term interest rate is now significantly below the trailing average.
The Wenzhou Comprehensive Index ended April at 19.75%, which is 75 basis points higher than March’s close. The trailing average rate for April is 20.18%, so the current rate is still lower. The spread between the current month end value and the trailing average value has narrowed, however, from March’s 93 basis points to April’s 31 basis points.
Some significant events happened in April to drive these movements. The top three institutions for private lending all reported higher non-performing loans, mostly driven by loans to small private businesses. According to a recent Bloomberg article:
Additionally, China’s first private bank began operations at the end of March. According to a recent Global Times article:
It is possible that as the small and medium sized businesses with higher credit quality are brought into the formal banking system, the informal credit system is left only to lend to firms with lower credit quality, thus pushing up the risk premium.