China Economy

China’s record new loans in 2016 beat expectations but raise debt fears

PUBLISHED : Thursday, 12 January, 2017, 5:59pm
UPDATED : Friday, 13 January, 2017, 12:46am

Chinese banks extended a record 12.56 trillion yuan (HK$14.1 trillion) of loans in 2016 as the government encouraged more credit-fuelled stimulus to meet its economic growth target, despite worries about the risks of an explosive jump in debt.

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 financial experts warned the nation’s debt load was nearing crisis levels.

In December alone, mainland banks extended 1.04 trillion yuan in net new yuan loans, far more than economists expected, central bank data showed yesterday.

Analysts polled by Reuters had expected new lending would fall to 700 billion yuan from November’s 794.6 billion yuan.

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New bank loans last year surpassed the levels of Beijing’s massive credit-led stimulus during the global financial crisis in 2009, according to Reuters calculations based on central bank data. The 2016 total was 8 per cent above the previous all-time high of 11.72 trillion yuan set just the year before.

Despite the country’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.”

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Lending continued to be driven heavily by robust mortgage growth despite measures rolled out by local governments late in 2016 to cool sizzling housing prices and avert property bubbles.

Household loans accounted for half of total new yuan loans in 2016, while corporate loans accounted for 48 per cent.

Medium-to-long-term loans accounted for 78 per cent of total new loans, while short-term loans accounted for 11 per cent.