Why Hasn’t Loan Growth Generated Economic Growth? China’s Central Bank Explains
For economists, the hot topic is why China’s growth is so much lower than its expansion of
credit.
Money supply has notched increases of close to 15% year-over-year in recent...
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Why Hasn’t Loan Growth Generated Economic Growth? China’s Central Bank Explains
For economists, the hot topic is why China’s growth is so much lower than its expansion of
credit.
Money supply has notched increases of close to 15% year-over-year in recent months,
but economic growth for the second quarter was only half that rate.
In its latest monetary policy report (in Chinese), China’s normally tight-lipped central bank
offered various explanations, some more reassuring than others:
• Loans going into areas that don’t immediately generate growth — like land needed for
construction projects.
• Hoarding of cash by businesses at a time of economic uncertainty, with some businesses
using funds to make more loans at a higher interest rate.
• Old industries fading away and new industries firing up both need credit, but neither
generates stellar output.
• A more sophisticated financial system takes longer to get credit to end users.
The central bank sees risks — especially with busines
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