A surge in business loans to the slowing mainland Chinese economy has prompted Hong Kong regulators to impose strict financial rules four years before they are required under new global standards.
The move is aimed at discouraging banks in Hong Kong from raising money by relying too heavily on short-term funds that can evaporate during periods of tumult. But big global banks have been resisting, over fears that the rules will cut into their profit by driving up loan costs.
While the scale of Hong Kong lending to the mainland is still small compared with domestic lending in China, the rapid buildup has started to concern local regulators and the International Monetary Fund. Their caution stems from problems during the recent global financial crisis, as well as concerns about the current economic environment.
Worries are increasing about a credit squeeze in China. The Federal Reserve, too, is pulling back on its bond-buying program, a stimulus effort that has helped keep short-term interest rates low and has made plentiful capital available for emerging economies like China.
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