Chinese premier Li Keqiang unhappy with central bank
Chinese premier Li Keqiang went public earlier today with concerns about the central bank after a record jump in lending in January. In the month aggregate financing was $685 billion compared to $487 billion expected.
China is facing dual problems of slowing near-term growth but rising indebtedness. Li has been a consistent critic of China's 2008 debt-fueled stimulus. Outside of China it's poorly understood about how large that stimulus was. It was unprecedented outside of wartime and is probably the largest single factor that ended the global recession.
However it came at China's expense.
Li has been cracking down on lending since 2017 but is trying to direct funds to small privately-owned companies. In a statement Wednesday he worried that the latest wave of credit is going to the wrong places.
"The increase in total social financing appears rather large on the surface, but if one analyses in detail, a large part of this rise was bill financing and short-term lending. Not only does this potentially create 'arbitrage' and 'empty cycling' of funds, but it may also bring new potential risks," he said.
The fear is that investors are taking the cheap short-term loans and buying high-yielding investments in a simple carry trade.
The central bank responded that it wasn't flooding the market with cash in January and that seasonal factors likely boosted January lending. They said arbitrage was only a "minority behaviour" with most of the loans helping small businessses.
