Lending Less in China?

It’s hard to believe any of the economic data that comes out of China these days, but that doesn’t stop the Chinese government from supplying even more.

While analysts try to estimate just how much copper wire is stored on pig farms and then seek to explain how a 38 percent rise in auto sales can be accompanied by a decline in gasoline consumption, they have this data on bank lending to mull over along with prospects for much slower credit creation in the year ahead as reported in China Daily.

Well, at least their stimulus programs are funded by new bank loans rather than by borrowed or newly printed money as is the case in most of the West.

The U.S. government would give their eye-teeth to see bank lending expand like this and would probably care even less than the Chinese government does about where it goes – as long as someone, somewhere is creating jobs of some kind and people have less idle time on their hands, it’s considered a job well done.

But, according to recent reports, that is likely to change next year.

China will set its loan target for 2010 at a level well below the total amount that banks gave out this year on concerns about deteriorating asset bubbles and bad loan problems, sources at the nation’s top regulatory bodies told China Daily yesterday.

“The strong tide of credit growth cannot be copied into next year,” a source at People’s Bank of China, the country’s top monetary authority, said.

The official at the nation’s top banking regulatory body echoed the tone. “The galloping credit growth this year was an exceptional measure at an exceptional time. The flood will definitely ebb in the coming year,” the official at China Banking Regulatory Commission (CBRC), who declined to be named, said.

The government was targeting new loan creation of between 6 and 7 trillion yuan for next year on top of the anticipated 9.7 trillion yuan issued by Chinese banks this year, the Shanghai-based Business News reported, citing an unnamed source at the nation’s top regulatory authority.

Since this year’s target was only 5 trillion yuan and they succeeded in doubling that amount, there is little reason to think that next year’s target is any better an indication of how much banks will actually lend.

Even if it is, it will still represent almost a doubling of the levels seen prior to the late-2008 phase of the financial market crisis.

Clearly, the message to pig farmers is, “Don’t sell your copper just yet”.

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Tim Iacono is a retired software engineer and writes the financial blog “The Mess That Greenspan Made” which chronicles the many and varied after-effects of the Greenspan term at the Federal Reserve. Tim is also the founder of the investment website “Iacono Research” that provides weekly updates to subscribers on the economy, natural resources, and financial markets.