Beijing tries to kill 'zombies,' keep economy alive

TOKYO - Bank lending is surging in China, despite the country's economic slowdown. The People's Bank of China, the country's central bank, said Feb. 16 that new yuan loans jumped 70 per cent on the year to a record 2.51 trillion yuan ($384 billion) in January.

In China, bank lending tends to rise in January, as institutions make more credit available early in the year to boost their annual profits. But it is impossible to extend credit to nonexistent borrowers, so what explains the rise?

Chinese banks extended a record 1.62 trillion yuan in loans in January 2009, after Beijing moved to implement a 4 trillion yuan stimulus package to weather the global financial crisis that erupted the year before. In China, the government often strong-arms banks into making more loans to juice up the economy.

The same thing may be happening again, although Beijing is trying to walk a tightrope between keeping the economy moving and preventing excessive investment. The government is building infrastructure across the country and using bank loans to pay for it. The central bank's easing of restrictions on down payments for home mortgages may have also pushed the lending figures higher.

If these are the only reasons for a surge in credit, banks will again be on the hook when the economy slows. In light of local governments' heavy debts and companies' excess capacity, the central government does not want to overdo it.

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