Beijing wanted banks to lend, and lend they did. New loans in the first quarter of the year reached US$670.9 billion, 91.6% of the full-year target. Lending slowed in April to US$87 billion from US$278 billion in March, but the central bank is holding firm in its pursuit of a relatively loose monetary policy.
The reason for that firmness, economists say, is uncertainty over the sustainability of an apparent rebound in China’s economy.
“The key for the policy is growth,” said Stephen Green, senior China economist at Standard Chartered. “It looks like we’re recovering a bit, but we think it’s hesitant recovery, a U-shaped recovery, not a V.”
The data have been mixed. The purchasing managers’ index rose to 53.5 in April from 52.4 in March, indicating a faster rate of manufacturing growth. Fixed-asset investment also rose, by 30.5% between January and April, largely thanks to state-backed investment in infrastructure and other areas.
However, while sectors tied to Beijing’s stimulus appear to be performing well, private activity in April appeared less rosy. Exports fell 22.6%, industrial output grew 7.3%, down from 8.3% in March, and electricity generation declined by 3.5%.
“If you talk to non-government sectors, especially export-related sectors, orders are still weak and profitability is still going to be hit quite hard,” said Wang Tao, chief China economist at UBS. “[And] for many sectors … you still have overcapacity.”
Unable to rely on external demand, Beijing is concentrating on maintaining enough liquidity domestically to keep the economy going. While that may be effective in the short-term, officials at the China Banking Regulatory Commission (CBRC) are reportedly concerned that too much money is being lent out too quickly. Some economists share the same concern.
“The question is: How many of those [loans] will turn out to be non-performing?” said Glenn Maguire, chief Asia-Pacific economist at Société Générale.