Lending by state banks there- shelling out funds without much concern about getting them back- is functionally a lot like deficit spending here, and both probably have similarly high multiples as well.

So while ‘normal’ deficit spending is reportedly going up in China, temper that by this kind of decrease in ‘shadow’ deficit spending.

China Loan Share at Record Low Shows Financing Risks

January 9 (Bloomberg) — Chinas bank loans as a share of funding in the economy may have fallen to a record low, highlighting the growth of alternative financing channels that have prompted warnings of rising credit risks.

New yuan loans probably dropped 14 percent last month from a year earlier, according to the median projection in a Bloomberg News survey of 37 analysts ahead of data due by Jan. 15. That would give bank lending a 55 percent share of aggregatefinancing for 2012, based on UBS AG estimates, the least in figures dating to 2002.

The decline underscores the waning ability of official loan data to capture the scale of debt in the worlds second-largest economy as borrowers and investors turn to less-regulated, higher-return shadow-banking products. The Peoples Bank ofChina is putting greater emphasis on aggregate financing and the International Monetary Fund says the growth of nonbank credit poses new challenges to financial stability.

Chinas economic performance in 2013 will be significantly affected by how seriously Chinese regulators are going to treat non-bank financing, said Shi Lei, a Beijing- based analyst with broker Founder Securities Co., who has provided research advice to Chinas securities regulator. While a hands-off approach will help the economy, a crackdown would be really bad for growth.

The PBOC lending figures are among December data in the coming days that will show whether an economic rebound that began in September picked up or slowed last month after a seven- quarter growth slowdown. Trade figures due tomorrow may show exports rose at a faster pace and a Jan. 11 report may indicate inflation accelerated.

5 Responses

  1. I wonder if they have figured out that those massive bank loans that will never get paid back can be inflationary.

    Warren I think the story of how China has funded its growth with bank loans that are the equivalent of government debt is very interesting for furthering MMT.

  2. Can not understand if there is not some capital flight from China. Does anyone know if the Renminbi can freely be exchanged for foreign currency. If not I would expect China sooner or later will have to let the dollar peg go with all this credit creation/deficit spending going on.

      1. @roger erickson,

        “One of the most shocking reports of corruption came from the Bank of China. A 67-page report released in June 2008 showed that 18,000 corrupt officials and employees of state-owned enterprises had fled abroad or gone into hiding since the mid-1990s.”

        You have to wonder if most got opportunities in London or NYC. Any idea what our White Collar Crime stats are in comparison? Are our crooks just more professional about not letting their government prosecute them?

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