Shadow Banking, Household Borrowing Leap Despite Property Clampdown and Deleveraging
Borrowing by China’s household sector as well as shadow banking business saw a sharp increase in September, despite Beijing’s ongoing deleveraging campaign.
Figures released by the People’s Bank of China over the weekend indicate that total social financing, a broad index of credit in the Chinese economy, saw a 23% increase in September to hit a six-month high of 1.82 trillion yuan.
Bonds issuance and entrusted loans – the latter considered a key form of Chinese shadow banking – gave a major boost to total social financing, as did new lending, which produced a reading of 1.27 trillion yuan last month. The household sector accounting for the majority of new yuan lending, with a share of 58%.
China’s M2 money supply also saw its first increase this year in September after tapping a run of historic lows in preceding months, with a year-on-year increase of 9.2%, as compared to 8.9% in August.
While China has launched a concerted deleveraging campaign this year to rein in the huge amount of debt accumulated as a result of post-GFC stimulus measures, analysts point out that Beijing continues to rely upon credit extension to bolster economic performance.
Analysts from China Merchant Securities see new loans hitting 14 trillion yuan this year, around 2 trillion ahead of Beijing’s informal guidance.
JZ Securities analyst Deng Haiqing said to The South China Morning Post that China still suffered from “credit fever,” with Beijing’s stimulus of growth running contrary to its efforts to contain systemic financial risk.
“A credit fever is another form of economic stimulus, and goes against China’s broad trend of macroeconomic control,” Deng said.
“China needs to be aware of the lesson from the US subprime crisis- an indebted household sector can be the biggest source of risk.”
Beijing may also be using loosening credit policy to pump up economic performance in the lead up to the country’s semi-decennial National Party Congress later this month – one of the most important events on China’s political calendar, given its role in determining future leadership.
Other analysts point out that heavy borrowing by households is significant of continued strong demand for property, with both central and regional regulators recently cracking down on the illicit use of consumer and business loans for housing purchases.