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Unusual credit growth

(China Daily)
Updated: 2009-02-14 08:11

A spurt of credit expansion in January can help boost confidence in an early recovery of the Chinese economy in the face of the global recession. But policymakers should not read too much into this massive jump in lending.

Related readings:  China's bank loans see record growth

A close look at the structure of lending is urgently needed to grasp the reality of the national economy.

The People's Bank of China, the central bank, said on Thursday that Chinese banks extended a record 1.62 trillion yuan ($237 billion) in loans in January, more than double year-on-year.

At a moment when the country is trying every means to cushion its economy against the global economic downturn that hits its export sector increasingly hard, a robust growth in bank loans appears more than welcome to policymakers.

Such a credit surge shows that banks are all the way behind the government's massive stimulus package. With the central government shouldering a third of the cost of the 4-trillion-yuan ($586 billion) package, Chinese banks' ample lending will enable major infrastructure projects to start early.

In this sense, rapid credit expansion can be expected to provide solid support to economic growth soon.

However, the extraordinary jump in lending at present does not guarantee similar credit expansion in coming months.

As some analysts pointed out, the structure of lending in January, with short-term financing accounting for two-thirds of the total, does not bode well for a sustained expansion.

An explanation for the rise of short-term financing may be that banks still can not find enough quality clients except those government-led investment projects.

If that is the case, the current credit expansion is not great news for the country's numerous small and medium-sized enterprises, which created more jobs than big state companies but typically received less support from the banking system.

It was reported that the central bank has started collecting detailed lending information in regard of the current credit expansion.

It's an encouraging sign that monetary policymakers ostensibly have not loosened their guard against economic difficulties, which might be around the corner.

As trade plunged in January, with exports falling 17.5 percent from a year earlier and imports sinking 43 percent, it risks too much to base policymaking on the unusual and probably unsustainable growth of bank loans.

Besides, domestic banks' caution to finance only qualified borrowers should be made a virtue, not a vice, even when credit is badly needed to help battle the economic downturn.

Policymakers should keep in mind that viable lending is always crucial to the health of the banking sector as well as the country's long-term economic growth.