"China's banks lend with communist zeal
A prominent Chinese econo mist surveying business out side Beijing last month was taken aback when a provincial governor confided in him his greatest political achievement for the year. It wasn't anything that he had expected. The governor didn't cite cleaner drinking water, a drop in the crime rate, or even the conventional benchmark for local leaders in China, speedier economic growth.
According to the economist who told me the story this week, the governor's chest swelled on news that bank lending in his province had outpaced the national average. After local banks lent more money in the first quarter of this year than for the whole of 2008, the governor has clearly been presiding over an expansion of financing at warp speed.
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The heads of large state banks are appointed directly by the Communist party's personnel department...
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In short, if the Politburo issues an order, it doesn't really matter what the Chinese banks' foreign shareholders think. The bank chiefs are required by party discipline - the highest law of the land - to obey.
.....the heads of the banks compete to obey their political masters, in this case, by lending out as much money as they can as quickly as possible.
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In June, Chinese steel production was the highest on record, about equal to the combined production of the next seven largest producing countries.
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An economy already saddled with overcapacity will ahve to deal with even more, as hasty loans are used to build new factories, steel mills and chemical plants.,
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The Communist party is now readying lavish celebrations for its 60th anniversary in power in October."
and also on in the FT on that same day:
"The great free-for-all of China
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However, China's inreasingly fretful banking regulator worries that rampant credit growth "poses risks" to the financial system. The warning comes after banks advanced Rmb 5'840 bn (USD 855 bn) of new loans in the first five months, almost triple the amount a year earlier.
As for June's lending, at USD 220 bn it was a blockbuster as banks pumped up their quarterly loan numbers, just as they did in March (to USD 280 bn).
An unknowable amount of this cash has ended up on the blackjack tables of Macao - pr that other casino, the Shanghai Stock Exchange, where daily volumes are currently three times the five-year average.
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China failed to complete a USD 4.1 bn auction of one-year government bonds yesterday, suggesting that investors are positioning for higher inflation caused by the credit surge."
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