Despite the collapse of foreign demand, China is still growing its economy — then again, it’d be kind of hard not to be with the kind of lending going on with Chinese banks.
I’m in Beijing currently and I was walking with a 24 year old grad student and she was telling me how last week she got a phone call (random) from a bank (more random) offering her 10,000 RMB personal loan at a fixed rate. She studies economics, and she didn’t really understand it, but was curious.
So she asked them what this loan was for and they tell her to buy stuff… personal consumption, whatever she wants. No limits really. Just go spend some money.
She’s not quite adept enough to recognise this is a bubble and a disaster in the long run, but she did recognise it as very odd. She told them she’s going to NYC to study in August, and so she wouldn’t be suitable for this loan, but they persisted and told her that, no, that’s even better, as NYC has many nice things to buy!
… seriously. not a joke. I know it’s anecdotal but whatever.
Professor Michael Pettis adds some insight, which should terrify you:
Today bank stocks were down, on rumours that the very high and clearly unsustainable loan growth rates would soon come to an end. If you need any evidence of how topsy-turvy things have become that fact should be enough.
Under “normal” circumstances the possibility that banks would continue to force new loan growth at anywhere near the current rates should raise terrible concerns about an explosion in future loan losses and cause bank stocks to collapse. Instead, it is concern that this lending spree might come to an end that causes bank stocks to fall.
Of course this might not be totally irrational. If you believe, as most of us do, that there is an implicit guarantee by the government on future loan losses, then this is clearly a heads-we-win, tails-the-government-loses proposition. Let them pile on the loans at the guaranteed spread between lending and deposit rates.
Lovely. Massive lending, an implicit guarantee, a heads-we-win, tails-you-lose betting scenario… what could go wrong?
Business Insider Emails & Alerts
Site highlights each day to your inbox.