China floods economy with cash with coronavirus outbreak set to hit economic growth hard

Commercial banks extended 3.34 trillion yuan (US$477 billion) of credit in January, an all-time high for bank lending in a single month, the People’s Bank of China said

Aggregate financing also reached a new high of 5.07 trillion yuan (US$724 billion)

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The world’s second largest economy is widely estimated to suffer a decline of around a few percentage points in the first quarter of 2020 as the virus forced the vast majority of Chinese business activities to a standstill. Photo: AP

Published: 7:57pm, 20 Feb 2020Updated: 10:59pm, 20 Feb 2020

Chinese banks flooded the economy with a record amount of bank credit at the start of 2020, a move aimed at protecting fragile growth amid the coronavirus outbreak.

Commercial banks extended 3.34 trillion yuan (US$477 billion) of credit in January, an all-time high for bank lending in a single month, the People’s Bank of China said on Thursday. The figure is almost equivalent to the country’s total bank loans for the whole of 2007.

The net increase of medium and long-term lending for corporations reached 1.66 trillion yuan, showing banks’ support for large investment projects, while medium and long-term household loans, which often refer to mortgages, stood at 749.1 billion yuan (US$107 billion).

Aggregate financing, which includes bank loans, entrusted loans, banker’s acceptance bills, bond and equity financing, also reached a new high of 5.07 trillion yuan (US$724 billion), an increase of 388.3 billion yuan (US$55 billion) from the same period last year.

Will this lead to a historical high this year? Does it mean an end to the deleveraging campaign? Debt concerns will certainly return from a long-term perspective

Raymond Yeung

Raymond Yeung, chief Greater China economist of ANZ Bank, believes that January’s figures do not fully reflect the impact of coronavirus as many deals were prepared before the Lunar New Year holiday.

“Will this lead to a historical high this year? Does it mean an end to the deleveraging campaign? Debt concerns will certainly return from a long-term perspective,” he said. “If the nominal [gross domestic product] won’t be able to grow fast [upon the boost], the country is easy to fall into a liquidity trap like Japan,” Yeung warned.

The world’s second largest economy is widely estimated to suffer a decline of around a few percentage points in the first quarter of 2020 as the virus forced the vast majority of Chinese business activities to a standstill.

A large decline from last year’s 6.1 per cent gross domestic product growth rate could threaten the long-pursued goal of building a “comprehensive well-off society”, which demands an increase of at least 5.6 per cent this year.