Despite Beijing’s push for state-owned banks to lend more to private companies, half of new loans issued by China’s big six banks last year went to individual property buyers.
Data retrieved through a South China Morning Post analysis of the banks’ reported annual results underscores the challenges faced by Beijing in guiding more money into the real economy, amid mounting worries about higher household debt and a new housing bubble.
It also illustrates the problems facing China’s private sector, which, at a time of economic downturn, continues to be starved of bank capital.
In total, China’s six largest state-owned banks issued 2.53 trillion yuan (US$376.1 billion) in new personal housing mortgages in 2018, accounting for 49.4 per cent of total new loans (5.13 trillion yuan).
By contrast, just 29 per cent of total loans issued last year went to private businesses, a sharp drop from 57.5 per cent in 2017. Within that, almost one-third of new business loans were for real estate enterprises, which borrowed 8.7 per cent of all new loans in 2018.
This is despite the fact that Beijing has continuously called on financial institutions to lend more to private firms, especially small-and-medium-sized enterprises (SMEs), since the start of 2018.
Furthermore, the past year has seen the government roll-out out more regulation than ever before in an effort to prevent the real estate market from overheating.
The Post analysed lending data from China’s six mega-banks: Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China, Bank of Communication, and Postal Savings Bank of China.
Together, these lenders dominate China’s financial sector, holding more than 40 per cent of overall banking assets in the world’s second largest economy.
In absolute volume, new loans granted by the six mega-banks to companies slumped by more than half in 2018, to 1.49 trillion yuan.
The expansion of individual housing loans, meanwhile, only slowed by 6.3 per cent, to 2.53 trillion yuan. New loans obtained by property companies more than doubled to 448.8 billion yuan last year, from 293.3 billion yuan in 2017.
Tan Haojun, an economist and director of the China Private Economy Research Centre, said the data showed that the Chinese government had failed to solve the credit problems of small and private businesses, since it simply threw bad money after good.
He wrote in a note that China’s system of getting money into the real economy was inefficient and that the ideas of policymakers had not yet trickled into the banks.
Tan recommended that the rather than raising the amount of money it injects into the system, the People’s Bank of China (PBOC, China’s central bank) should adjust the way in which it distributes the capital.
“The proportion of loans given to the property sector might have been too high in the past, so the [big six] banks cooked their books [to make it look like their total number of loans was lower] … or they just did not care about the directive of decision makers and persisted in their old ways, lending most of the money to the property sector to get more substantial short-term returns,” Tan said.
He suggested that banks looking for additional funding from the PBOC should be required to show that they are actually lending more to private firms and SMEs. In a bid to galvanise the flow of money into the economy, the PBOC has made successive cuts to the reserve requirement ratio (RRR) since the start of last year, meaning banks have to hold less money in reserve and, theoretically at least, should have more funds for lending to businesses.
It has also poured more than 3 trillion yuan (US$446.6 billion) into the Chinese banking system and made clear that the additional money funnelled towards private firms and SMEs. The banks’ own reported figures suggest that they have not been complying.
Despite the overall slump in China’s economy, which last year grew at its slowest pace for almost 30 years, the property sector appears to be heating up.
But the regulations have also added to the financial pressures faced by local governments, which are heavily reliant on income from land auctions, at a time when Beijing is also calling on regional authorities to embark on more fiscal spending to stimulate economic growth.
Income from land auctions across 300 Chinese cities slumped 16 per cent in the first quarter compared to the same period of 2018, according to China Index Academy, a property research institution.
In response, Beijing has allowed a “one policy for one city” approach to local property market regulation since the beginning of the year. Many regional authorities have subsequently introduced their own easing measures.
Song Hongbing, a bestselling author of books about China’s economy, wrote in a recent note of the dilemma faced by China, since relaxing the property market could squeeze consumers’ purchasing power and hurt economic growth, while a heavier regulation might drag on property prices and trigger a recession.