Surge in Lending in China Stokes Economic Worries (WSJ$): “China’s banks remain government-owned and are backed by what amounts to a sovereign pledge to keep them afloat. Indeed, the banks have been carrying a huge load of bad loans for years, and have rarely experienced runs because of the country’s closed banking system and China’s traditionally trusting bank customers. In recent years, Beijing has been taking steps to overhaul the banks and reduce their bad debts, including setting up some companies to take over bad loans. Still, with many Chinese banks once again handing out loans rather indiscriminately, a new set of bad loans could emerge on their books, setting back China’s financial reforms. And their problems could become harder to fix as the country prepares to open its doors to foreign competition.... The lending boom has roots in an economic-stimulus program that Beijing began in the late 1990s after the Asian financial crisis. It promotes government spending and easy credit to stimulate growth and generate jobs. The program has called for issuing large amounts of government debt, seriously widening the country’s budget deficit — $37.39 billion last year, compared with $2.5 billion in 1993.... Banks have become so eager to lend that they often conduct only minimal credit checks and impose minimal penalties for delinquencies.... Beyond consumer lending, loans are bolstering industries large and small. Surging demand for steel and other construction materials has also drawn on the deep well of easy credit — and raised concerns over a potential glut if demand tapers off.... At least 10 more large-scale shopping malls are set to open in Shanghai during the next few years, the vast majority financed with bank loans.” (Thanks Peter Johnson).
Also: China’s Money Supply Soars by 21.6% in August (Xinhua)
