Rising fiscal stimulus and support for the private sector

CHINA ADVISORY - Report 23 Nov 2018 by Andrew Collier

To understand how the Chinese banking system is coping with the economic downturn, we spoke to 15 banks in 10 cities. Despite concerns about expansion of debt, our November 2018 survey of fifteen banks shows that banks are lending for infrastructure projects in a clear bid to stimulate the economy. There is also a surprising degree of support for SME loans.

Beijing has recently enacted policies to assist the private sector by ordering state banks to increase lending to small firms and permit banks to roll over loans. These policies have sparked concerns that an increase in credit could make future debt more difficult to resolve. Clearly, maintaining employment through small business is a priority for Beijing.

In the meantime, due to a sharp slowdown in government-led infrastructure construction, an important contributor to GDP, political leaders are requiring banks to increase lending to this sector to prevent a sharp collapse in infrastructure and a decline in economic growth.

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