The Chinese government is attempting to cool its red-hot economy by instructing state banks to stop issuing letters of credit (L/Cs) in sectors that are in its opinion running out of control.

The latest group of exporters frustrated by this practice appears to be pulp suppliers from New Zealand who say the authorities have used this type of intervention before.

No L/C, no pulp

The Chinese have virtually stopped purchasing pulp from New Zealand according to one of that country's leading exporters, Carter Holt Harvey.

Company executives said this was because state-owned banks had stopped issuing the L/Cs needed to complete the purchase of pulp.

Credit control

"What we've seen in the last six to eight weeks is low demand from China, where it's effectively out of the market," Carter Holt chief operating officer Rhys Jones said on 22 July when the company reported a lower operating profit.

The controls on credit had certainly affected demand and prices, chief executive Peter Springford said of China's credit clampdown, pointing to a 5 per cent fall in prices there in recent weeks.

Service resumed

Banks resumed issuing L/Cs during July for pulp the executives said.

Earlier this year the Chinese used similar tactics to put the brakes on the country's construction and steel industries they added.

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