The Chinese government has set a target for just 7.5 trillion yuan in new credit for 2010, yet it’s hard for some analysts to see how this is even possible given soaring investment into urban fixed assets already taking place.
It’s not like these projects will want to just suddenly stop, half-way finished. And it’s tough to see how they would be forced too, given that this could expose and create bad loans in the banking system:
Projects newly started this year totaled 18,462, a slight drop of 71, while total planned investment reached 1.06 trillion yuan, up 42.7 per cent year on year, despite the government’s pledge to cut the number of new projects from late last year in its effort to squeeze credit.
“That makes the (government) cap of 7.5 trillion yuan far from enough to sustain these projects,” said May Yan, an analyst at Nomura International (HK) Limited.
Based on the NBS data, the average investment in a newly started project rose to 58 million yuan from 40 million yuan a year ago, which means the scale of these new projects has swollen, and some of them may be large infrastructure projects requiring additional input for many years, Yan said.
“That must bring continuously thriving demand for credit and raw materials,” Yan said, estimating new credit this year would reach 10 trillion yuan if the investment trend in the first two months continues.
“Otherwise, many existing projects will be short of funding and non-performing loans will rise at banks, because, while some projects can be temporarily suspended, many cannot.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.