Yesterday I described some of the reasons why the People’s Bank of China cash injection into banks was not stimulus, in part because declining credit demand is a part of the ongoing adjustment. The WSJ runs with that today:
China’s central bank so far has failed to lift the world’s second-largest economy out of its doldrums, and that is in part because of businesspeople like Li Jun.
…”Banks are willing to lend to me, but I’m borrowing less because I’m not expanding my business that much,” said Mr. Li, chairman of Jiangsu Haihao Agriculture Development Co. “The market is not looking good, which makes me more cautious.”
The central bank this week is injecting 500 billion yuan ($81 billion) into China’s five major state-owned banks, according to a senior banking executive briefed on the decision. The move—which is expected to channel money to areas that the government deems important, such as public housing and small business—marks the latest of a series of targeted easing measures intended to arrest a slowdown in China’s economic growth.
Results from many of these efforts have yet to show up in economic data. Economists and analysts say some of the difficulty stems from the traditional reluctance of China’s big banks to lend to small businesses, a hesitance that is increasing as economic growth slows and it becomes more likely that loans will go bad.
But they also say a lack of real demand for loans, rather than a shortage of credit, is holding the economy back. That explains a recent drop in the rate of overall credit expansion in China despite the PBOC’s efforts and shows the limited power the central bank has in getting the economy going.
“There’s plenty of money. People just don’t want to use it,” said Derek Scissors, a resident scholar at the American Enterprise Institute, a Washington-based think tank. “Dumping yet more money in isn’t going to change that.”
Such always happens as any bubble exhausts itself and that appears to be where we are with Chinese property. However, it’s much more than this. Credit is being prudentially channeled away from certain sectors in which over-capacity is obvious, like steel, ship-building, real estate developers etc.
We’ll have to keep saying this ad nauseum until the credit-addled Western press gets it, but the PBOC is so far not failing, it is succeeding in deliberately aiming for deleveraging in certain sectors. The trick is keeping it from letting become a pandemic but given the national credit stock is still growing north of 10% per annum that does not appear an imminent threat!
