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Wary of systemic risks to the Chinese economy, Beijing began forcing restrictions on home ownership and loans especially to developers. This was to prevent the property market from overheating.However, the unexpected consequence of Beijing’s actions was tighter credit for small and medium sized business owners, who were forced to turn to China’s shadowy $3 trillion – $4 trillion underground banking system. In the city of Wenzhou, business owners fled or committed suicide when they defaulted on their underground loans. To combat this vicious cycle, the government began boosting lending in Wenzhou.
More recently, Chinese premiere Wen Jiabao has called for increased lending to small and medium enterprises (SMEs). A new report from Citigroup analysts Ting Lu and Xiajoia Zhi gives us a breakdown of just who has been getting money from Chinese banks.
First a look at property sector loans:
- Banks gave out 992.3 billion yuan of new property loans for the nine months ending in September, accounting for 17.5% of total new loans. The share declined from 19% in the first half of the year.
- Growth of property loans dropped to 14.6% year-over-year (YoY) at the end of September, from 16.9% YoY at the end of June, and 21.3% YoY at the end of March. The slowdown in property loans, was sharper than the slowdown in overall loans.
- Outstanding developer loans were 3.15 trillion yuan at the end of September, up 0.6% YoY, but much lower than the 5.1% YoY growth at the end of June.
- Mortgage loans totaled a little over 7 trillion yuan and were up 17.2% at the YoY at the end of September.
- Social housing loans were 280.8 billion yuan at the end of September, up 69.4% from September 2010.
- Loans to new developers fell to 12 billion yuan in the third quarter, from 42 billion yuan in the previous quarter.
- New social housing loans eased to 24.2 billion yuan in Q3, from 25.7 billion yuan in the previous quarter.
Now here’s a look at changes in loans to small and medium business enterprises:
- SME loan growth was 17.5% YoY at the end of September, higher than overall loan growth of 15.9%. Loans to SMEs for the nine months ending September 2011, were 2.26 trillion yuan, or 68.4% of new loans to enterprises
- Loans to small enterprises was 24.3%, or 13.9 percentage points higher than loans to big enterprises.
Going forward, the Citigroup analysts expect new monthly loans to rise above 500 billion yuan, without breaching Beijing’s target of 7 – 7.5 trillion yuan in annual new loans. It’s unclear how much good this will do as credit demand typically wanes towards the end of the year.
Loans to social housing projects and the SME sector are expected to stay strong, but the analysts also expect a recovery in loans to the railway industry. Funding to new developers will however continue to be limited.