ANOTHER STEP TOWARD DEBT DEFLATION: China's New Loans Fall Short Of Government Target

china bank

Photo: Tricia Wang çŽ‹åœ£æ· on flickr

Bloomberg is reporting that some banks’ officials are admitting what we have already known: that Chinese loans demand is incredibly weak, and the big banks will very likely lend much less they planned (or being planned by the government) to lend. 

Total new loans for the year 2012 will likely to fall short of target by RMB1 to 1.5 trillion.  At the current rate, total new loans for this year will probably be at RMB7 trillion according to the report, way below the government’s plan of RMB 8 to 8.5 trillion.  In fact, demand for credit is so weak that it will probably be the first time in 7 years for new loans target be not met according to Bloomberg.

Here, I have already highlighted the very poor loan demand for the past few months.  The big 4 banks, for instance have been lending almost nothing in May, citing poor loans demand.  We have also seen some bizarre scenes in a bank branch in Wenzhou where people are queuing up to repay their debts after the shadow banking system went almost bust.  Thus I am speculating a debt deflation scenario, where the private sector in China is effectively deleveraging by borrowing less and repaying debts when the debts are still serviceable (up next: defaults).

While there are many who believe that banks like to lend massively at the month-end such that the stories of poor loan growth for the first 20 days of any months do not matter, this admission of the likelihood of not meeting loans growth target is telling us that things are indeed worse than most think.  They are right in pointing out that banks gear up lending in month-end, but that should not mask the reality that demand for credit is simply very weak.

This article originally appeared here: It’s official: China’s new loans will fall short of government’s target
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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