Chinese banks lend 740 bln yuan in December

Now this is scary. The guardian reports that Chinese banks lend 740 bln yuan in December.

(emphasis mine)

China banks lend 740 bln yuan in December
Reuters, Monday January 12 2009

BEIJING, Jan 12 (Reuters) - China's banks granted a whopping 740 billion yuan ($108.3 billion) in new local-currency loans in December, the biggest monthly increase since January, the Shanghai Securities News reported on Monday.

The surge, up from 476.9 billion yuan in November and just 48.5 billion yuan in December 2007, shows that banks heeded the government's call to ramp up lending as part of its strategy for stimulating the economy, the official paper said.

As a result of the burst of lending last month, outstanding yuan loans at the end of 2008 exceeded 30 trillion yuan, up 19 percent from a year earlier, the paper said.

Forecasts of economists polled by Reuters centre on a 16.5 percent rise in yuan loans from a year earlier. [ID:nPEK32088]

Citing unidentified authoritative sources, the Shanghai Securities News said new yuan loans in 2008 totalled 4.88 trillion yuan, up from 3.63 trillion yuan in 2007.

Loan growth in December 2007 was particularly weak because the central bank had clamped down hard on credit in an effort to slow investment growth and cap inflation.

The reported increase in December would be second only to the jump of 803.6 billion yuan in January when banks rushed to book new loans to take advantage of the opening of new lending quotas.

To support the government's efforts to boost the flagging economy, the central bank scrapped lending limits in early November and has cut interest rates five times since mid-September.

It has also lowered banks' required reserves four times over the same period to encourage banks to help finance a two-year, 4 trillion yuan ($585 billion) stimulus package aimed at bolstering growth dented by the global financial crisis. ($1=6.835 Yuan) (Reporting by Langi Chiang; Editing by Alan Wheatley and Ken Wills)

My reaction: Wow. Chinese banks have certainly heeded the government's call to ramp up lending.

I will go into it in detail in my next entry, but for now consider the following:

1) China's economy shrinking as exports fall (which means the money supply is growing waaay faster than the economy)
2) Rampant money printing due to 40 billion trade surplus.
3) China has halted its sterilization efforts (selling bills to mop up all that printed cash)
4) Banks are flooding the economy with new loans
, as China's central bank lifts restrictions on lending.
5) The Chinese money supply is moving at a crawl due to overblown "deflation fears".
6) The is very little actual debt deflation happening (Chinese money supply is not shrinking due to a gigantic pile of bad debt, like in the US)

Conclusion: China is setting itself up for hyperinflation in the very near future. At that point, it will be confronted with a choice:

A) Watch millions of Chinese starve as hyperinflation wipes out their life savings.
B) Drop the dollar peg and aggressively sell off its dollar holdings to restore stability to its currency.

Which one do you think China will choose?

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0 Responses to Chinese banks lend 740 bln yuan in December

  1. Dave says:

    You know, I really don't understand China's fiscal policies. Sometimes they look shrewd, and sometimes just plain inept.

    Is it inexperience? Are they trying to be overly clever? Are they taking dangerous chances with their currency in order to acquire our manufacturing base?

    Whatever they are trying to do, it baffles me. And now it looks as though they have a tiger by the tail.

    Ironically, the U.S. policies are looking increasingly shrewd and well planned, apparently aimed at destroying other nations, such as Russia, China and specific oil exporting countries.


  2. dashxdr says:

    Think of it as the US is the rider, China&etc; are the horse. The rider has directed the horse to head out to a sea that is full of choppy waves + turmoil.

    The horse is finding it hard to breath, it's drowning, in fact, and starting to feel panic.

    Meanwhile, the rider is high and dry.

    How shrewd the rider is! He'll only die after the horse drowns. Of course, far better never to have pointed the horse out to sea anyway...

  3. Robert says:

    740bn Yuan isn't so much money. It's only ~740 yuan per chinese person or about $US 100 per person (~$US100bn).

  4. Anonymous says:

    Um, honestly, I'd bet on China letting their people starve. In some sick way I think the Chinese government wants its people to remain serfs; not to have a large middle class.

  5. Anonymous says:

    Anonymous you have to understand that it doesn't matter what they choose. If China has hyperinflation whomever they are trading with will inherit that hyperinflation. So China has a choice of letting China and USA have hyperinflation together or saving China and letting the USA crash alone. So it doesn't matter what China chooses to do. The USA can not be saved. Hyperinflation is inevitable. China can be smart and avoid it or it can continue to hang on to the US and fall with the US.

  6. Yohay says:

    China's regime is quite ruthless. I'd go for the starvation option...

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