4.2. Response from the financial sector
On the supply side, in answer to the calls from all quarters to support the stimulus effort, China’s state-owned banks responded, also with frenzied enthusiasm. The State Council document issued in December 2008 (cited earlier) had called on the financial sector to support the government’s industrial policy by increasing lending for investment in a long list of sectors, projects and conditions including public infrastructure, earthquake reconstruction, energy saving, technical renovation and technology upgrading, regional development, small and medium-sized enterprises, and rural projects. The document also encouraged banks to provide credit to support “financially sound enterprises that faced temporary difficulties”. The document called, as well, for rolling out policies to expand consumer credit, to support mortgages for first-time buyers and for car purchases. It even specified quantitative targets for the expansion of bank credit, to strive to increase new lending by CNY 4 trillion in 2008, and for broad money supply to grow by 17%. The document also called for reducing restrictions on corporate bond issuance and expanding the range of financial products available for financing investment. In sum, the government was calling on the banks to pull out all the stops.
Bank officials were only too happy to oblige. After all, the directives from the government and political leaders effectively eliminated all personal responsibility for the lending decisions, and credit growth exploded. Especially favoured were projects backed by local governments. Net new credit grew by CNY 4.2 trillion in 2008 (Table 3) in a year when demand was sharply reduced by the economic slowdown. Net new credit had surpassed the average annual growth of CNY 3-4 trillion in the boom years of 2005-07, and even exceeded the government’s target of CNY 4 trillion. In 2009, new lending more than doubled from the 2008 level, to CNY 9.6 trillion. In the first quarter alone, it expanded by CNY 4.6 trillion.
4.2. Response from the financial sector
On the supply side, in answer to the calls from all quarters to support the stimulus effort, China’s state-owned banks responded, also with frenzied enthusiasm. The State Council document issued in December 2008 (cited earlier) had called on the financial sector to support the government’s industrial policy by increasing lending for investment in a long list of sectors, projects and conditions including public infrastructure, earthquake reconstruction, energy saving, technical renovation and technology upgrading, regional development, small and medium-sized enterprises, and rural projects. The document also encouraged banks to provide credit to support “financially sound enterprises that faced temporary difficulties”. The document called, as well, for rolling out policies to expand consumer credit, to support mortgages for first-time buyers and for car purchases. It even specified quantitative targets for the expansion of bank credit, to strive to increase new lending by CNY 4 trillion in 2008, and for broad money supply to grow by 17%. The document also called for reducing restrictions on corporate bond issuance and expanding the range of financial products available for financing investment. In sum, the government was calling on the banks to pull out all the stops.
Bank officials were only too happy to oblige. After all, the directives from the government and political leaders effectively eliminated all personal responsibility for the lending decisions, and credit growth exploded. Especially favoured were projects backed by local governments. Net new credit grew by CNY 4.2 trillion in 2008 (Table 3) in a year when demand was sharply reduced by the economic slowdown. Net new credit had surpassed the average annual growth of CNY 3-4 trillion in the boom years of 2005-07, and even exceeded the government’s target of CNY 4 trillion. In 2009, new lending more than doubled from the 2008 level, to CNY 9.6 trillion. In the first quarter alone, it expanded by CNY 4.6 trillion.
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