Containing financial risks a key challenge for China
China’s banks extended a record 12.65 trillion yuan ($1.84 trillion) of loans in 2016 as the government encouraged more creditfuelled stimulus to meet its economic growth target, despite worries about the risks of an explosive jump in debt. China’s top leaders pledged last month to stem the growth of asset bubbles in 2017 and place greater importance on preventing financial risk, even as some global financial experts warned the nation’s debt load is nearing crisis levels.
In December alone, Chinese banks extended 1.04 trillion yuan in net new yuan loans, far more than economists had expected, central bank data showed last week.
Analysts had expected new lending would fall to 700 billion yuan from November’s 794.6 billion yuan.
New bank loans last year surpassed the levels of China’s massive credit-led stimulus during the global financial crisis in 2009. The 2016 total was some 8 per cent above the previous alltime high of 11.72 trillion yuan set just the year before.
Despite China’s ever-more frantic pace of credit creation, however, some analysts say Beijing is getting less and less bang for its buck, with every yuan of stimulus proving less efficient in generating the same amount of economic growth, while adding to the risk of rising defaults and non-performing loans.
“Let’s say credit growth in China right now is about 13 per cent but GDP growth is around 6.7-7 per cent,” said Commerzbank senior emerging market economist Zhou Hao in Singapore.
“From a longer-term perspective, you’re using the same level of credit growth but you have lower real economic growth, so the credit is becoming less productive and less efficient.”
A pick-up in borrowing by Chinese companies boosted to 67 per cent the proportion of long-term corporate loans among all loans in December, ANZ economist David Qu wrote in a note, a significant reversal from recent months, when home mortgages predominated.
Dozens of Chinese cities have added new curbs on home buyers since October, to battle speculation amid skyrocketing prices.
But expectations for tightening of credit expansion this year could have driven some of the December borrowing, Qu added.
Despite the December slowdown, household loans made up half of total new yuan loans in 2016.
Capital Economics said the December pick-up was unusual, since annual loan quotas are mostly used up by year-end.
“A shift worth noting was a decline in corporate bond issuance in favour of bank loans, which explains the concurrent jump in bank lending... This likely reflects the sharp increase in bond yields that took place last month,” Capital Economics’ China economist Julian Evans-Pritchard said in a note.
“We expect the gradual slowdown in broad credit growth since last summer to continue in the coming months, given few signs that fresh monetary easing is on the cards. This will start to weigh on economic activity before long,” he added.