At the start of 2020, Chinese banks flooded the economy with a record amount of bank credit. The move was aimed to protect fragile growth amid the coronavirus outbreak.
In January, commercial banks extended US$477billion (3.34 trillion yuan) of credit. On Thursday, the People’s Bank of China said that it is an all-time high for bank lending in a single month. To the country’s total bank loans for the whole of 2007, the figure is almost equivalent.
Showing banks’ support for large investment projects, the net increase of medium and long-term lending for corporations reached 1.66 trillion yuan. Nevertheless, medium and long-term household loans, which often refer to mortgages, stood at US$107 billion (749.1 billion yuan).
Aggregate financing includes equity and bond financing, banker’s acceptance bills, entrusted loans, and bank loans. So, the aggregate financing reached a new high of US$724 billion (5.07 trillion yuan). It increased, from the same period last year, with US$55 billion (388.3 billion yuan).
Raymond Yeung is chief Greater China economist of ANZ Bank. He believes that January’s figures do not fully reflect the impact of coronavirus. It is because, before the Lunar New Year holiday, many deals prepared.
He was asked if that will lead to a historic high this year and also if that means an end to the deleveraging campaign. Raymond Yeung answered that concerns about debt would certainly return from a long-term perspective. Moreover, Yeung warned that in case the nominal gross domestic product wouldn’t be able to grow fast upon the boost, the country will easily fall into a liquidity trap like Japan.
Thus, in the first quarter of 2020, the world’s second-largest economy is widely estimated to suffer a decline of around a few percentage points. Moreover, the virus is forcing the vast majority of Chinese business activities to a standstill.
Last year there was a significant decline of 6.1% in gross domestic product growth rate. Thus, it might threaten the long-pursued goal to build a comprehensive well-off society. That goal demands at least an increase of 5.6% this year.
The virus made extended Lunar New Year holiday. Thus, the part of the country’s overall plan to kick-start production for brining the national economy back on track is the influx of credit.
The central bank released US$171 billion (1.2 trillion yuan) of market liquidity in a single day, in early February. It contrasted the usual withdrawal, which comes after the Lunar New Year break.
Ten basis points cut the one-year MLF (medium-term lending facility). Thus, market rates have guided down after the seven and fourteen-day repurchase agreements.
On Thursday, the one-year LPR (prime loan rate) also lowered by ten basis points. The five-year loan top rate is often used to benchmark mortgage loans and other corporate borrowings. Five basis points cut the five-year loan prime rate.
Concerns about small and medium firms have risen. It is because the destination of the funds is remaining unclear. Moreover, those firms are running privately.
All in all, It is the current situation of the Chinese economy. Let’s hope everything will get on back to the track.