Chinese banks find their credit in high demand
Saturday, January 2, 2010
BEIJING -- China's state-owned banks have become a main engine of the global recovery, financing the construction of copper mines, purchase of airplanes, expansion of retail stores and other projects even as their U.S. and European counterparts scale back lending.
The surge in Chinese lending, triple the 2008 rate, has provided a lifeline to international corporations during the worst recession in decades, and it reflects a diversification in China's global economic role beyond its holdings of vast amounts of U.S. government debt.
Over the first nine months of 2009, new lending by Chinese banks has injected $1.3 trillion into the world economy, according to statistics from the People's Bank of China, which functions as China's central bank. The beneficiaries have included U.S.-based Southwest Airlines, the Netherlands' Aercap airplane leasing company, Civil Aviation Authority in Dubai, and Foster's brewery and Woolworths supermarket chain in Australia.
China's banks have been signing so many new loan contracts so quickly that the country's banking regulatory commission recently warned them to avoid the "blind" pursuit of size lest they run into the same troubles as their Western counterparts.
The bulk of loans from Chinese banks are staying in the country, and the central bank has not released an official breakdown between foreign and domestic loans. But bank analysts who have reviewed the public data estimate that the amount going to overseas companies has doubled in the past year to represent roughly 11 percent of all new loans, a shift that would appear to reflect an effort by China to diversify its holdings beyond U.S. Treasurys.
As recently as five years ago, China's big state-owned banks were seen as old-fashioned, bureaucratic behemoths that could barely handle personal checking accounts, much less the complexities of international financing. But by the time the financial crisis hit in 2008, they were in a strong position, thanks to management shake-ups and an injection of capital from the Chinese government that helped them get rid of their nonperforming loans.
The biggest of the state-owned banks, the Industrial and Commercial Bank of China, is now the world's largest by market capitalization (although that status changes day to day) and the most profitable.
As of October 2009, Chinese banks held $5.8 trillion in outstanding loans, outpacing Japan, according to the International Monetary Fund. That figure reflected a 22 percent increase over the first 10 months of the year, a period in which outstanding loans held by U.S. banks shrank by 7 percent, to $6.7 trillion, and loans held by European banks stayed flat, with little in the way of new lending.
Loans as stimulus
The bank loans are a key part of China's $586 billion stimulus package, often nicknamed the country's "New Deal." While the stimulus is largely directed at domestic infrastructure projects like highways and bridges, it is also helping inject large amounts of liquidity in other countries around the world. According to an analysis by Bloomberg, seven Chinese banks made syndicated loans overseas in the first 10 months of 2009 as compared with three in the first 10 months of 2008.
"China's banking industry is operating well, without being affected by the crisis. In contrast, the banks in the West lost a lot, and therefore their capacity to make loans was influenced and became lower," said Guo Tianyong, director of the Chinese Banking Research Center at the Central University of Finance and Economics in Beijing.
With Citibank, HSBC and other traditional lending institutions sidelined by their own internal problems, Chinese banks jumped in and took their place in a number of important transactions.
"In the past year, Chinese banks made many top headline deals. In good times, such deals would not have fallen into the hands of Chinese banks," said Fan Bing, chief China representative of South Africa's Standard Bank Group, which signed a $1 billion loan deal with four Chinese banks in September.