09/20/2016, 15.24
CHINA
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Henan, loans for over € 60 billion as bad debts grow

by Wang Zhicheng

Provincial authorities want aid for new avenues of growth. The credit-to-GDP gap is three times higher than the danger line, which is 10 per cent. The reading is higher than the levels in East Asia before the 1997 Asia Financial Crisis or in the United States before the outbreak of the 2008 financial crisis. For the International Monetary Fund, at least $ 1.3 billion of loans are at risk of default. At the end of 2015, China's total debt was equal to 249 per cent of the GDP.

Beijing (AsiaNews) – The banking regulator of the central Chinese province of Henan has told lenders to grant at least 450 billion yuan (€ 60 bn, US$ 67 bn) in new loans this year to help shore up the local economy.

The economy of Henan, a province with 95 million inhabitants, is based mainly on coal, but because of pollution and obsolete mining capacity, it needs to find new engines for growth. The loan target set by Henan marks only a 7 per cent increase from the loan size in 2015

Chinese analysts note that such lending has raised concerns the local government is becoming increasingly intrusive in influencing bank business decision-making, but has highlighted the banks’ rising bad loans.

The Bank for International Settlements published a quarterly report on Sunday saying that China’s first-quarter credit-to-GDP gap, a measure of credit vulnerability, was three times higher than the danger line.

The gap between credit and GDP is a measure of the credit vulnerability. China's credit-to-GDP gap hit 30.1 per cent in the first quarter, far above the 10 per cent level associated with banking risks.

The reading is higher than the levels in East Asia before the 1997 Asia Financial Crisis or in the United States before the outbreak of the 2008 financial crisis.

Since the financial crisis of 2007-2008 there has been a boom in credit as the Chinese government has attempted to spur flagging growth. But some of that lending was not productive and was used to cover debts by obsolete, market-indifferent state-owned companies. The IMF estimates that loans worth .3 trillion are at risk of default.

China's total debt hit 168.48 trillion yuan (U$ 25 trillion) at the end of last year, equivalent to 249 per cent of national GDP, the China Academy of Social Sciences has estimated.

Still, China's vast foreign-exchange reserves and control over the banking system could help cushion the economy from financial crises.

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