Lending adds increasingly less to Chinese GDP, pressuring Premier Li
Each yuan of debt is adding less to GDP with lumbering state-owned companies like China National Petroleum remaining the big borrowers
The mainland economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise.
The government's broadest measure of credit rose 58 per cent to a record 6.16 trillion yuan (HK$7.8 trillion) in the January-March period, when gross domestic product gained 7.7 per cent, compared with 8.1 per cent a year earlier. Each US$1 in credit firepower added the equivalent of 17 US cents in GDP, down from 29 cents last year and 83 cents in 2007, when global money markets began to freeze.
The diminishing returns to lending heighten focus on the need for what the International Monetary Fund said on Tuesday are "decisive" policy changes in the world's second-largest economy.
Without a refocus away from state-approved projects, Li and President Xi Jinping risk overseeing both a further slowdown in growth and an increase in non-performing loans.
"Less efficient and more highly leveraged borrowers have been kept afloat, tying up credit that could be used to generate more growth," said David Loevinger, a former senior coordinator for China affairs at the US Treasury Department.
"To boost growth, China needs to channel more financing to its private enterprises, which are both more profitable and less leveraged than their state-owned counterparts."