Credit supply slowdown in 2014: UBS

Credit supply will grow at a slower pace this year compared with 2013, according to Wang Tao, chief China economist with UBS AG.

The decrease will be mainly a result of tougher supervision on shadow banking, which Wang defines as off-balance sheet financing, especially local government debt.

In the meantime, the United States Federal Reserve's recent decision to scale back its monetary injection will also result in capital pulling out of China. In response, the People's Bank of China, the central bank, may have to adopt more monetary tools, including possible cuts to the bank's deposit reserve ratio to support liquidity, she said.

However, Wang ruled out concerns that credit supply will be dampened by a series of pledged financial reforms, such as on interest rates.

She said banks will increase their lending scale to compensate for a squeezed profit margin, meanwhile more financing products will be launched, which may also help restore credit growth.