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August 7, 2009
China Faces Delicate Task of Reining In Bank Lending
By DAVID BARBOZA
SHANGHAI — When China announced three weeks ago that its economy had grown by 7.1 percent in the first half of this year, this country appeared to be a lone bright spot during the global recession.
But many economists now worry that too much of China’s growth was fueled by aggressive, state-directed lending that could eventually result in a soaring number of bad loans and mounting government debt.
While banks in the United States and Europe are still reluctant to make loans because of fears they will not get their money back, Chinese banks issued a record 7.4 trillion yuan, or $1.1 trillion, in loans during the first six months of this year, mostly to big state-owned companies and government infrastructure projects.
Here are just a few examples of the largess: In March, the city of Guangzhou was given a loan of 81.3 billion yuan to improve road transportation; in May, China’s Aviation Industry Corporation said it would receive 100 billion yuan to help the company export high-technology equipment; and a few weeks ago, the China National Nuclear Corporation received loan approval for nearly 100 billion yuan to advance the development of nuclear power.
“They opted for a very quick fix,” said Stephen Roach, an economist and chairman of Morgan Stanley Asia. “Surging investment, fueled by the most rapid bank lending in history, accounted for nearly 90 percent of China’s G.D.P. growth in the first half of this year. And that is worrisome.”
Mr. Roach said China’s growth remained too heavily weighted toward investment, rather than consumption, creating unhealthy, imbalanced growth.
Analysts say that in China, new loans have grown this year at nearly three times the pace of a year ago and that some of those loans may have been funneled into the resurgent Chinese stock and property markets, creating the risk of new asset bubbles. The Shanghai stock market is up about 84 percent this year.
A similar lending binge in the 1990s led to an explosion of bad debt that left the biggest state-owned Chinese banks nearly insolvent after the Asian financial crisis, until they were bailed out by the government in a series of moves that ended in 2004.
This unprecedented move to stimulate the economy through bank lending now appears far more ambitious than the $586 billion economic stimulus package that Beijing announced last December.
http://www.nytimes.com/2009/08/07/bu...20china&st=cse
But many economists now worry that too much of China’s growth was fueled by aggressive, state-directed lending that could eventually result in a soaring number of bad loans and mounting government debt.
While banks in the United States and Europe are still reluctant to make loans because of fears they will not get their money back, Chinese banks issued a record 7.4 trillion yuan, or $1.1 trillion, in loans during the first six months of this year, mostly to big state-owned companies and government infrastructure projects.
Here are just a few examples of the largess: In March, the city of Guangzhou was given a loan of 81.3 billion yuan to improve road transportation; in May, China’s Aviation Industry Corporation said it would receive 100 billion yuan to help the company export high-technology equipment; and a few weeks ago, the China National Nuclear Corporation received loan approval for nearly 100 billion yuan to advance the development of nuclear power.
“They opted for a very quick fix,” said Stephen Roach, an economist and chairman of Morgan Stanley Asia. “Surging investment, fueled by the most rapid bank lending in history, accounted for nearly 90 percent of China’s G.D.P. growth in the first half of this year. And that is worrisome.”
Mr. Roach said China’s growth remained too heavily weighted toward investment, rather than consumption, creating unhealthy, imbalanced growth.
Analysts say that in China, new loans have grown this year at nearly three times the pace of a year ago and that some of those loans may have been funneled into the resurgent Chinese stock and property markets, creating the risk of new asset bubbles. The Shanghai stock market is up about 84 percent this year.
A similar lending binge in the 1990s led to an explosion of bad debt that left the biggest state-owned Chinese banks nearly insolvent after the Asian financial crisis, until they were bailed out by the government in a series of moves that ended in 2004.
This unprecedented move to stimulate the economy through bank lending now appears far more ambitious than the $586 billion economic stimulus package that Beijing announced last December.
http://www.nytimes.com/2009/08/07/bu...20china&st=cse
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