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Monday, September 22, 2003

Bank Lending Rockets in China

Yesterday I was defending the Chinese economy from its sillier critics. Today, to show that I am not blind, a 'balancing piece' which indicates some of what the crtics are worried about: the system does seem flooded with liquidity. Chinese banks are increasing lending fast, and at very low margins (oh, oh!), and foreign banks seem to be shying away. I have to collect two books on Chinese banking and financial reform (courtesy of Amazon) from the post office this morning (thanks to Walter Hutchens for steering me towards them), so maybe I'll be a bit clearer on all this later in the week.

In the face of aggressive lending by local institutions, international banks' share of foreign currency loans fell from 15 per cent in 2001 to 7.4 per cent last year; and their share of total assets of the Chinese banking system dropped from 2 to 1.1 per cent over the same period. The figures, produced by European bankers ahead of the European Union-China summit in Beijing in October, have been taken from the People's Bank of China (PBOC), the central bank.

The market share of overseas lenders is likely to have fallen further in 2003, as Chinese banks' loan books have expanded even faster this year, prompting the PBOC to impose higher deposit requirements on most local institutions late last month. Lending last year rose 15.4 per cent year-on-year, said the China Economic Quarterly. But it has accelerated more rapidly in 2003, rising 71 per cent year-on-year in July alone, the PBOC said. "Chinese banks have a lot of liquidity, and so we are seeing a lot of aggressive lending in large amounts," said one Shanghai-based foreign banker yesterday. "One thing we have to alert clients to, is the fact that this liquidity might at one time end." A number of projects involving multinationals, such as Shanghai's new $12bn deep-water port and an LNG terminal in Guangdong, have been financed almost exclusively by Chinese banks. "It is not uncommon to see a 12-year project financing for less than a 1 per cent margin - there is no justification for us getting into this business," the banker said.
Source: Financial Times

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