NewBank loans play little part in Hong Kong growth story
GDP growth of about 2.6pc in the past seven years far below rise in credit, report shows
Credit growth in Hong Kong over the past seven years has done less and less to help the local economy, as banks lend into financial markets or to retailers that use the cash for working capital, not investment.
Between 2008 and 2014, it grew rapidly at an average of 14 per cent every year, a report from Hang Seng Bank showed. At the same time, gross domestic product lagged far behind, growing at an average of just 2.6 per cent.
The trend is a new one for the city's economy. Before the global financial crisis, credit and GDP expansion trailed each other far more closely than today.
From 2002 to 2008, the loan-GDP ratio stood at between 60 and 70 per cent, showing that bank lending was going to companies that were driving economic growth, or to people who were consuming. Credit extended to entrepreneurs, who invest in businesses, make money and then spend that money, has long shown a strong connection with driving economic growth.
The ratio tumbles in the aftermath of the 2008 crisis. Last year, lending contributed to just 30 per cent of GDP growth.
"One of the most baffling features of the current recovery is that, even amid vigorous credit expansion, the economy has grown at a generally low pace," Hang Seng senior economist Ryan Lam said in the report.