Excess liquidity in China heating up
China Daily is reporting that their state’s banks have been loaning out money at a rate which has now exceeded their loan targets for the entire year:
Preliminary calculations showed that new lending was 1.53 trillion yuan, the central bank said on its website yesterday, bringing total lending this year to 7.4 trillion yuan, far exceeding the country’s initial full-year target of disbursing 5 trillion yuan in loans. Total lending so far this year amounted to almost one quarter of last year’s GDP.
This stands in stark contrast to the financial landscape in the US, where private lending has fallen yet again. In large part this was driven by government policies which lowered equity capital requirements on fixed assets such as infrastructure:
The surge in June loans is a result of the government’s decision to pare the equity capital requirement of fixed-asset investments in May, Liu Yuhui, director of the Center for Chinese Economic Evaluation at the Chinese Academy of Social Sciences, told China Daily.
The equity requirement for railway, road and metro projects was lowered to 25 percent from 35 percent, while the ratio for airport, port and inland shipping construction was lowered to 30 percent from 35 percent.
It may be difficult to perform a direct comparison between the US and China especially since I do not know how much capacity China still has for economic growth; it’s hard to tell if the inflated figures are due to genuine progress or speculation fueled by loose monetary policies. Nevertheless as has been said before, loose lending standards are something that I’d be worrying about. The less-than-transparent standards of China’s financial landscape are certainly giving me some jitters, especially when Singapore’s Temasek Holdings is still stepping up investments in China when liquidity is almost overflowing:
HONG KONG/SINGAPORE, July 9 (Reuters) – Singapore’s Temasek [TEM.UL] is in talks with a unit of Bank of China (601988.SS) (3988.HK) to launch a US$1 billion to US$2 billion investment fund to focus on fast-growing infrastructure projects across the vast nation, sources said on Thursday.
Let’s hope that all goes well. On a side note I wonder if the Austrians have said anything on this so far.