Loan growth has been fast but may be not as effective
Chinese loan growth has continued rising in the first five months of 2020 at 11.06%YoY compared to 9.49% in 2019 to support economic growth.
However, loan growth does not always translate into economic growth. It seems that some loans have entered into asset markets, including some real estate projects (as land sales fees have increased), stock and bond markets, and structured deposits. The rest has gone to infrastructure projects even when progress has been slow. Ample liquidity will keep interest rates low. 3-month SHIBOR has fallen continuously to 1.453% per annum at the end of May 2020 from 3.02% at the end of 2019.
The central bank has invented an innovative re-lending program for SMEs. At the end of May, Chinese banks have offered relief on CNY3.9 trillion of loans since the outbreak of Covid-19 to SMEs. More, banks have postponed taking principal repayments on CNY 1.44 trillion in loans to almost 800,000 SMEs and pushed back CNY 65.4 billion in interest payments. Banks also rolled over CNY2.4 trillion in financing to SMEs according to Bloomberg citing CBIRC officials. As such bank margins are expected to be squeezed in 2020.