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January 12, 2018

Corporate Finance Demand Fuels Record Lending in China

It has been reported that China’s banks lending reached a record high in November 2017. They provided $169.27 billion worth of new loans in November!

Analysts expected loans to rise from 6.663 billion yuan in October 17 to 800 billion in November, but banks recorded 1.12 trillion yuan. This figure far exceeded expectations. According to fund analyst Zhend Lianghai of Ciatong Fund Management, this was due to “strong corporate financing demand, with medium- and long-term corporate and household loans expanding sharply,”.

We think that this surge in lending could also be fueled by regulators attempts to reduce shadow and off-balance sheet lending, couples with a downturn in China’s corporate bond market. This has encouraged companies to seek finance from traditional banks.  

Regulators have 20 new rules so far from the Prudential Regulation Bureau in order to combat illicit lending and shadow banking activities. These stricter rules, meant to curb market risk, mean that the huge increase in lending is quite noteworthy.

New rules have also been imposed on the micro-loan sector, in order to combat increasing levels of household debt. Analysts, however, are more concerned with the increasing levels of bad corporate debt in China. According to Bloombard, defaults on corporate loans have tripled since 2015. Seeking Alpha has also predicted a banking crisis for China in the future, as bad corporate debt accounts for over 150% of China’s GDP.

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