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China's credit surge augurs no restart of massive stimulus

Source: Xinhua | May 2, 2016, Monday | Online Edition

DATA showing an increase in loans has fanned speculation that the government may turn to a massive stimulous program, a move that would pose a risk to global financial market.

Upon closer inspection, however, these fears are unfounded.

It is normal for a country to adopt an accommodative policy to underpin a slowing economy, and China will continue to this end until the economy fully restores its strength.

China will not resort to large stimulus measures; policymakers are more than aware of the consequences of such a short-sighted program. Moreover, the country is still addressing the side effects of the previous stimulus package, such as overcapacity.

According to official data, China's new yuan loans rose to a record of 4.61 trillion yuan (about US$712 billion) in the first quarter, sharply up 930.1 billion yuan from a year earlier.

The situation is reminiscent of the credit build-up during the global financial crisis starting in 2009 when the authorities turned to credit to bolster the economy.

However, instead of being channeled to investment projects with short-term impact on GDP, as was the case back then, the lion's share of the current new loans ended up funding long-term programs, supporting small businesses, and facilitating consumption, such as housing.

This rapid increase in loans is temporary.

The beginning of the year saw a slew of new measures to stabilize growth and the start of numerous infrastructure projects. Recovering international commodities prices also led many firms to start replenishing their inventories.

These temporary, seasonal factors mean that the credit boom in the first quarter is unlikely to last long.

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