China business loans may hit record $146bn in Jan - analyst

11 February 2009 05:18  [Source: ICIS news]

By Judith Wang and Bohan Loh

SINGAPORE (ICIS news)--Chinese banks’ loans to local businesses in January may have expanded about 20% year on year to set a new record for monthly loan disbursements as the government pumps in more cash to rev up its struggling economy, sources said on Wednesday.

“New loans that have been granted to local businesses [for January] would surely be in excess of CNY1,000bn ($146bn),” said Chen Shuixiang, an analyst from brokerage firm China Jianyin Investment Securities in Shenzhen.

Chen said he was basing his estimates on China Premier Wen Jiabao’s recent announcement at the World Economic Forum in Davos, Switzerland, that Chinese banks had granted CNY900bn in new loans for the first 20 days of January 2009.

The previous high was recorded in January 2008, when banks forked out CNY803.6bn worth of credit to local corporations, according to data from the mainland’s central bank, the People’s Bank of China (PBOC).

The sudden rush of liquidity available for local businesses could be traced to the government’s massive CNY4,000bn fiscal stimulus package, which was accompanied by a string of interest rate cuts last year, the analyst said.

There were also orders from the central government to loosen business credit terms, he said.

China hopes that a combination of fiscal and monetary measures would prevent a sharp deceleration in its GDP growth this year amid the slump in global demand.

Increased liquidity had supported petrochemical prices as Chinese buyers restocked in January.

The mainland’s largest bank, the Industrial and Commercial Bank of China (ICBC), loaned out CNY252.1bn during the month and said that credit provided for trade and businesses have surged more than threefold year on year.

A source from China Construction Bank (CCB), the country’s fifth-largest bank, said that lending terms have been significantly eased in line with the central government’s macroeconomic policies.

“As long as the companies comply with the bank’s conditions and are in a relatively good financial status, we will lend money to help them. The monetary policy seems not (as) tight as last year’s,” said Cai Xin, an officer from the credit department of CCB, in Mandarin.

Petrochemical companies and manufacturers hit by the global downturn are beginning to get some relief from the credit squeeze, sources said.

“Last year, especially, was difficult for many of us to seek credit. We have to go to extra length to convince the banks to lend us money, such as driving showy cars...just to show off our [supposed] strong standing,” said an official from Xiang Sheng Polyester, a mid-sized producer of polyester yarns and chips in eastern China.

Businesses have also noticed speedier approvals and easier processes in obtaining credit now, sources said.

“I recall we need to go through a long process with the [bank loans] when we want to introduce a state-of-the-art technology in our film-grade chip business,” said the deputy general manager of Shaoxing Cifu, a major producer of polyethylene terepthalate (PET) in eastern China.

“But this year, the banks have given us all the credit lines we need. It’s become very easy,” he said.

The Chinese central bank started its aggressive monetary policy easing in September 2008, with a 27-basis-point cut in interest rates following the collapse of US investment bank Lehman Brothers.

The central bank again cut rates by another 27 basis points to 6.93% in October 2008 in a coordinated move with five other major central banks to shore up confidence following the realisation of the depth and severity of the global financial crisis.

The deposit reserve ratio – a commonly used anti-inflationary tool – was also simultaneously reduced by another 0.5 percentage point after a one-percentage-point cut in September 2008, when the central bank slashed interest rates for the first time in six years.

Some analysts were sceptical of the projected growth, the rate at which fresh funds entered the market and the trickle-down effect it would have on the domestic economy.

“We’re not sure if the money loaned out would actually be spent. It’s all about trying to spend your way out of trouble,” said Song Seng Wun, chief economist at Singapore brokerage CIMB-GK.

Official estimates of how much credit has been given out to businesses are due to be released by PBOC on 14 February.

($1 = CNY6.83)

With additional reporting by Salmon Aidan Lee

To discuss issues facing the chemical industry go to ICIS connect

By: Bohan Loh
+65 6780 4359

< previous article(ICIS Podcast: Chemical News Central 2 November 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly