China’s banking regulator has said it will strengthen its controls over loans made by banks for corporate working capital in order to make sure the money is put to proper use. In other words, you can’t go and borrow a lot of money to expand a factory and then spend it on real estate investment. The working capital loan rules, which the CBRC published on its website, are still in draft form and soliciting public opinions.
The publication of the draft rules came after Chinese banks pumped out a record RMB7.4 trillion ($1.1 trillion) worth of loans in the first half of the year, almost 25% of GDP, fuelling official concerns that a large proportion were flowing into stock market and property speculation.
Forbes reported that Liu Mingkang, head of the CBRC and shown in our illustration, warned last week of the risk from surging bank lending, singling out the dangers of unhealthy growth in the property sector.
The central bank last week also pledged to "focus money and credit growth on supporting sectors of the real economy" for the rest of the year.
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