Most experts think China's economy is fast on its way to recovery in part due to months of easy credit and a boom in bank lending. But this carries potential risk such as creating bubbles in the property and equity markets, as one economist at the Bank of Communications explains.
The Bank of Communications was the first to step up and estimate how much of bank loans in China was going into speculation on stocks and property.
On Saturday, the fifth largest Chinese bank put the amount at less than 10 percent of the country's total bank loans, or 730 billion yuan.
Lian Ping, Chief Economist of Bank of Communications said "It's roughly estimated that 7 percent of the new loans have gone to the stock market."
And Lian Ping says the remaining 3 percent has gone to the property market.
Lian Ping said "After analyzing the data collected from local property markets, we have basically concluded that the property market is rather healthy. Two-thirds of properties have been bought for accommodation."
But a third were bought for speculation. That's enough to push up asset prices. Home prices in several major urban centers have surpassed their records two years ago, before the downturn hit. And easy bank credit is blamed for helping inflate the bubble.
Lian Ping said "Although these loans are not high in proportion, they are high in total amount. So we should maintain a high awareness of them."
The regulators know what's going on. The China Banking Regulatory Commission has issued measures to ensure the loans go to support the real economy.
Guo Tianyong, Research Center Director of Central University of Business & Finance said "The measures are to find out where businesses have spent the loans they borrowed from banks. Banks have to keep a track of their loans, so that risks can be controlled and managed."
The Bank of Communications says increasing bank credit is not the only driving force of asset price surge. There's also the economic recovery, inflation expectation and hot money inflow.
Last week, China's central bank said consumer prices were stabilizing after months of decline. Prices could bottom out at the end of the third quarter before rebounding.
(CCTV August 3, 2009)
