1/9
Good article, as usual, by Caixin on how regulators hope to expand credit this year. Credit must expand by at least 10% to achieve the growth target, but regulators are trying to limit the amount of credit going to property and infrastructure.
caixinglobal.com/2022-03-09/in-…
Good article, as usual, by Caixin on how regulators hope to expand credit this year. Credit must expand by at least 10% to achieve the growth target, but regulators are trying to limit the amount of credit going to property and infrastructure.
caixinglobal.com/2022-03-09/in-…
2/9
"Even as the central government seeks to stimulate the economy with more credit," Caixin notes, "it’s still seeking a balance so it doesn’t derail efforts in recent years to slash excess leverage in China’s overheated housing market and debt-ridden local governments."
"Even as the central government seeks to stimulate the economy with more credit," Caixin notes, "it’s still seeking a balance so it doesn’t derail efforts in recent years to slash excess leverage in China’s overheated housing market and debt-ridden local governments."
3/9
As a result, "banks are focusing on issuing a greater share of their loans to small businesses, as well as agricultural, technology, green and manufacturing companies this year, as advocated by China’s central bank."
As a result, "banks are focusing on issuing a greater share of their loans to small businesses, as well as agricultural, technology, green and manufacturing companies this year, as advocated by China’s central bank."
4/9
This is very similar to Japan's "window guidance" in the 1970s and 1980s. The problem of course is that the amount of credit expansion is determined not by the needs of the various borrowing sectors but rather by the need to achieve a GDP growth target.
This is very similar to Japan's "window guidance" in the 1970s and 1980s. The problem of course is that the amount of credit expansion is determined not by the needs of the various borrowing sectors but rather by the need to achieve a GDP growth target.
5/9
But the actual borrowing and investment needs of small businesses and manufacturing and technology companies is determined by expected demand, and this in turn is largely determined by growth in consumption and exports.
But the actual borrowing and investment needs of small businesses and manufacturing and technology companies is determined by expected demand, and this in turn is largely determined by growth in consumption and exports.
6/9
But while Beijing is pulling out all stops to keep exports growing, as of yet it still seems unable to implement measures that will boost domestic consumption, which is far more important and which means, above all, raising wages and the household share of GDP.
But while Beijing is pulling out all stops to keep exports growing, as of yet it still seems unable to implement measures that will boost domestic consumption, which is far more important and which means, above all, raising wages and the household share of GDP.
7/9
The result, as ever, is supply-side support for sectors that need demand-side support. Unfortunately just because banks are forced to lend to private businesses, this doesn't mean that private businesses will use the funding productively.
The result, as ever, is supply-side support for sectors that need demand-side support. Unfortunately just because banks are forced to lend to private businesses, this doesn't mean that private businesses will use the funding productively.
8/9
From what I understand from the @ChinaBeigeBook folks, private businesses in China aren't falling over themselves in their eagerness to expand production. If that's true, what will the loans be used for?
From what I understand from the @ChinaBeigeBook folks, private businesses in China aren't falling over themselves in their eagerness to expand production. If that's true, what will the loans be used for?
9/9
In the end, I would argue, China will achieve the high 5.5% GDP growth target it set for itself this year, but to do so it must force credit to expand, and lending to property and infrastructure must drive the bulk of that expansion.
In the end, I would argue, China will achieve the high 5.5% GDP growth target it set for itself this year, but to do so it must force credit to expand, and lending to property and infrastructure must drive the bulk of that expansion.
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