11-trillion-yuan lending spree, but China’s growth is unmoved

Chinese banks extended a record 11.72 trillion yuan (HK$13.83 trillion) in local currency loans last year to bolster growth, but non-bank credit shrank and overall growth stayed weak.

Unlike in 2009 when a lending spree of 9.6 trillion yuan prompted a rebound in headline GDP growth, last year’s effort failed to have much impact as funding from other sources dried up.

China’s aggregate social financing, a measure that includes bank loans, bond financing and stock fund-raising, shrank by 467.5 billion yuan last year.

Loans in foreign currency shrank by almost $100 billion due to expectations of the yuan weakening, while financing from bank bills dropped more than 1 trillion yuan as companies became reluctant to lend to each other, according to central bank data released on Friday.

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“Borrowing and lending among companies is shrinking, reflecting a worsening credit environment,” said Li Wei, an economist with the Commonwealth Bank of Australia in Sydney.

“Also, bank loans are not always used to improve economic activity on the ground – that’s why bank lending looks strong but economic activity remains weak.”