It’s official: China will miss lending targets

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Bloomberg is reporting that some bank officials are admitting what we already know: that Chinese loan demand is incredibly weak, and the big banks will very likely lend much less they planned (or is being planned by the government).

Total new loans for the year 2012 will likely fall short of target by RMB1 to 1.5 trillion. At the current rate, total new loans for this year will probably be RMB7 trillion according to the report, way below the government’s plan of RMB 8 to 8.5 trillion. In fact, demand for credit is so weak that it will be the first time in 7 years for new loans target be not met, according to Bloomberg.

I have already highlighted the very poor loan demand for the past few months. The big 4 banks, for instance have loaned almost nothing in May, citing poor demand. We have also seen some bizarre scenes in a bank branch in Wenzhou where people are queuing up to repay their debts after the shadow banking system went bust. Thus I am speculating that a debt deflation scenario is under way in which the private sector in China is effectively deleveraging by borrowing less and repaying debts when the debts are still serviceable (up next: defaults).

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There are many who believe that banks like to lend massively at the end of the month and argue that stories of poor loan growth for the first 20 days do not matter. But this admission of the likelihood of not meeting the official lending growth target is telling us that things are worse than most think. They are right in pointing out that banks gear up lending in month-end, but that should not mask the reality that demand for credit is very weak.