BEIJING/SHANGHAI - Chinese companies are getting more creative in the business of money lending as they struggle to keep profits ticking over in a cooling economy, raising concerns they are adding to the mountain of debt risks building in the world's No.2 economy.
Big state companies in industries struggling with over-capacity but with easy access to credit are borrowing funds, not to invest in their business but to lend to smaller firms sometimes at several times the official interest rate, part of an informal lending market in China that authorities are taking aim at.
China's central bank increased pressure on banks to rein in such informal lending and speculative trading last week in money markets, letting short-term interest rates spike to extraordinary levels.
In the $3.7 trillion so-called shadow banking market, the fastest growing area is in so-called entrusted loans, which are arranged by banks on the companies' behalf, and in bankers'acceptance notes, tradeable securities that give a steady flow of cash.
Issuance of entrusted loans and bankers' acceptance notes has more than doubled to 1.6 trillion yuan ($261 billion) in the first four months of this year from 636 billion yuan a year ago.
"Can we use the money to expand production? Definitely not,"said a deputy general manager at a state-owned steel firm in the eastern Shandong province, speaking on condition of anonymity.
"We will lose more if we produce more. We can only rely on other channels," he added, noting the firm loses an average 100-200 yuan per tonne of steel sold.
China's economic growth is widely expected to slow further in the current quarter as exporters struggle with weak global markets, making lending money an increasingly attractive business option.