These chinese are crazy

In China military discipline also applies in finance.

In China, the country where more copies are made, also seems to want to copy the western policy of strong growth in bank lending policy. What they should know is that this policy over many years has led us to the extremely serious present situation. Of course, when in early 2009 economic crisis create social tensions in China and the closure of factories, perhaps at that time, the chines autorities took this decision to increase lending. Do not forget that China has more than 1500 million people.

In March and April 2009 the Chinese government ordered Chinese banks to lend large sums of credits that should reach the market.

Lending in China (2005-june-2009, source: The People’s Bank Of China).

Chinese banks made new loans in 2009 for and amount of 9.6 trillion yuan, a 95.3% increase compared to 2008. Incredible it’s over 60% of gross national product until june 2009¡¡¡¡¡¡.

This credit growth is more than 3 times the increase in recent years for the chinese economy.

Mr. LIU Mingkang Chairman of the China Banking Regulatory Commission (CBRC) since march 2003, and member of the Monetary Policy Committee of the People’s Bank of China, and a member of the 17th Central Committee of the Communist Party of China, make an speech in Hong Kong, in january 2010, about this excesive loan growth. This was his speech:

“Among the packages, credit played the primary role in supporting massive infrastructure investment, as evidenced by the new enormous credit supply of RMB 9.5 trillion for the whole year, a dramatic rebound from the tightening of credit in 2008. That said, we actually controlled the credit growth the whole year around. If we take a look at the breakdown by quarters, we would find that the most rapid monthly credit expansion was in the first quarter, which was highly necessary. Every month in that quarter we disbursed RMB 1.52 trillion.  But quickly with our prudential management, it was followed by a gradual slowdown to normal levels the next three quarters, which was RMB 920 billion, 430 billion and 310 billion respectively. On average, the credit supply in 2009 grew by 31.7% y-o-y. Such rapid credit buildup stabilized market confidence, eased liquidity stress and picked up the economy. This year, we will continue to control the pace and amount of the credit, i.e., credit supply will go down to roughly RMB7.5 trillion and grow by 18% y-o-y.”

Acording to Blomberg and marketwatch.com:

Chinese banks extended 379.8 billion yuan ($55.6 billion) of loans in December, bringing total loan growth for the year to 9.6 trillion yuan. That’s a rise of 95.3% from the year earlier, according to the People’s Bank of China.  

And jump they have. In Shanghai, prices for high-end real estate were up 54 percent through September, to $500 per square foot. In November alone, housing prices in 70 major cities rose 5.7 percent, while housing starts nationwide rose a staggering 194 percent. The real estate rush is fueling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets, and local governments.

Other PBoC data released Friday showed China’s foreign-exchange stockpile climbed to $2.4 trillion at the end of December, up $126.4 billion from the end of the third quarter.  

China foreign exchange reserves chart, and world countries ranking, (source: scmp).