Fall in Chinese Loans Poses Economic Threat

When growth in China's economy slows, government leaders typically call on state-owned banks to make loans to rev up activity. But that tactic may not work this time, The Wall Street Journal reported. Bank lending plunged in April, according to the People's Bank of China, and has remained weak in May, bankers and borrowers said. The decline owes to companies being wary about borrowing when demand is uncertain and profits are evaporating. The fall also is due to Chinese banks' unwillingness to lend to companies in problem markets—like exporters, or companies out of favor with the Chinese government, such as property developers, and practical difficulty shifting loans to new priority areas like small businesses. The result: China's banks can't turbocharge the economy as they have in the past. "It is critical for bank lending to stabilize or pick up in order to support steady economic growth," said Huang Yiping, an analyst at Barclays Capital. But medium- and long-term loans to business, a key measure of appetite for investment, have been on a declining trend since the beginning of 2010. Data for April 2012, published last week, show 126.5 billion yuan ($20 billion) in new medium-term and long-term business loans, down 46% from a year ago. In the past, weak lending reflected deliberate moves by the government to control credit growth. This time, even before a move by the central bank last week to cut the reserves that banks are required to hold, freeing up more money to lend, funds in the banking system appear ample. Read more. (Subscription required.)