This is an arresting chart.
From Standard Chartered, it shows loan growth in China — nominal and real. The country’s central bank said last week that Chinese banks extended a record 1.62 trillion yuan ($237bn) worth of loans in January.
It’s not a massive surprise of course, China’s banks have been under pressure to lend to support Beijing’s economic objectives. And, as Standard Chartered points out, there’s also a tendency for Chinese banks to lend the most money in the first months of the year, in order to avoid year-end controls and maximise profits.
The breakdown, from the analysts:
Breaking down the numbers, short-term loans showed a net increase of CNY 340bn (USD 50bn), bill financing rose by CNY 624bn (USD 92bn), and long-term loans increased by CNY 523bn (USD 77bn). The majority of banks’ total lending is still short-term, allowing them to minimise risk and draw back liquidity quickly if and when needed. However, there is a significant amount of funding going into longer-term projects – likely more than enough to match fiscal stimulus funds allocated by the central government. No one wants to borrow in foreign currency anymore – outstanding FX loans fell by USD 8.5bn in January to USD 235bn.
Well, of course – China hates the US, right?
In any case, they don’t necessarily need US dollars. In addition to forcing credit into the system, China’s also expanding its money supply — targeting a 17 per cent increase this year. Broad money (M2) was up almost 19 per cent year-on-year in January, or 3.1 per cent month on the month — the biggest increase on record, and all driven by the loan growth, according to Standard Chartered.
Unsurprisingly, the loan explosion has caused a bit of alarm among analysts. Standard Chartered says:
The People’s Bank of China (PBoC) is reportedly concerned about the speed and quality of loan growth. We are, too. Looking around the world, it is hard to fault China on the speed and force of its monetary policy response to the economic slowdown. But so much money in such a short amount of time is surely going to lead to problems down the road. For the moment, though, China is enjoying a liquidity boom which may still last a little while.
In the meantime, there are all sorts of questions as to what the Chinese are doing with those loans. Interestingly, Bloomberg is running a story today quoting an analyst who says as much as 660bn yuan ($97bn) of the lending is being ploughed into Chinese equities.
The Shanghai Composite Index, we note, has gained about 19 per cent in the past month.
Boomtime for China?
Related links:
China record loans diverted to stocks, Shenyin says – Bloomberg
Economic nationalism and the USD – FT Alphaville
There’s some good news out of China too, really – FT Alphaville