China lending remains out of control ahead of November’s plenum

Economic growth


China loans Sept13

The blog’s views on the unsustainability of China’s epic economic growth since 2009 have now become truly mainstream.  Everyone now agrees, including the new leadership, that it was created by a credit bubble.  State-owned China Daily has even now warned that a commercial property bubble potentially now exists alongside the residential bubble and the infrastructure ‘white elephants’, adding:

“Once the commercial property market crashes, nobody is willing to rent a shop that loses money every day, when there is no customer but accumulating rental and utility fees.”

Whilst the Wall Street Journal has just finished a detailed 7-part survey of the whole issue.  Its conclusion is clear:

“Bank-fuelled lending to state enterprises and local governments has led to overcapacity; serious debt problems for local governments, companies and lenders alike; and numerous white-elephant projects, from nearly empty malls and resorts to bridges to nowhere”

The problem, of course, is how to unwind it.  The new leadership is clearly now trying to restrict lending, whilst the powerful State-Owned Enterprises (who dominate the economy) spend their time trying to avoid the new controls.  Even more worrying is that nobody really knows how much debt exists:

  • The last published number was Rmb 10.7tn ($1.75tn) at the end of 2010
  • In July, the leadership asked the National Audit Office (NAO) to undertake an urgent survey of the issue
  • This week, one senior official has warned the new number may be over Rmb 15tn, or even Rmb 18tn
  • He also added that “the NAO’s statistical criteria are still relatively narrow
  • If they were widened by the time the report is made in October, “the actual number would exceed Rmb 20tn

Any major borrowing increase over 3 years is worrying enough, as fellow-blogger John Richardson noted last week.  But it becomes even more worrying when nobody knows if the real increase has been 50%, or 80% or 100%+.  As China’s official bank regulator warned last week, “There is a structural gap between the supply of capital and companies’ real needs.”

As the chart shows, 2013’s official lending (red column) is up 7% versus 2012, and 50% above 2008 levels.  But the real action today is in the shadow banking area, where the SOEs have been operating.  After first squeezing them in June, the authorities relented in July, allowing shadow banking to account for an unbelievable 87% of total lending.

Clearly this was far too high, and August data shows it was reduced to 55% of the total.  But even this level shows lending is essentially still out of control.  And this conclusion is confirmed by data for electricity consumption (green line), the best proxy for real GDP growth, which hit a new record in July.  Yesterday’s strong data for industrial production confirms the picture.

We have been here many times since July 2009, when the blog first wrote about the problem.  In the past, the government has always given way after a brief struggle, and allowed the bubble to keep building.  That is clearly the general expectation today.

But this time may well be different.  President Xi’s father dealt with much greater problems when he ran Guangdong province from 1978 and helped Deng to reopen China to the world after Mao’s death.  The next few months will tell us if his son has inherited his character, as plans for the November plenum are finalised.


US auto sales surge as leasing deals remain cheaper than used cars


US auto sales showed continued progress in August.  As the chart shows, August ...

Learn more

Boom/Gloom Index shows sentiment remains positive


US and UK policymakers have been more upbeat recently in claiming that “...

Learn more
More posts
Housing markets face long-term downturn as central banks abandon stimulus

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Businesses set for transformation as supply chain chaos combines with Net Zero targets

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Auto industry provides a model for the transition to Net Zero

Flooding in China and Europe, record temperatures in the USA, wild fires – all these are signs...

Europe’s Green Deal will transform its economy, as floods confirm urgency of tackling climate change

The floods raging in Germany and Benelux highlight the scale of the Climate Change challenge ahead....

Governments continue to fail the Covid challenge

Governments have failed to properly protect their populations from the pandemic. Some have actively ...

The blog’s 14th birthday – and the New Normal world it predicted has arrived

The blog has now been running for 14 years since the first post was written from Thailand at the end...

ACS Chemistry & the Economy webinar on Thursday

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

225 years ago today. The first ever vaccination – against smallpox, the great killer of the time

The pandemic has reminded us of the critical role played by vaccination in our lives. Its impact beg...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more