Chinese Premier Li Keqiang urged banks to do more to support the real economy, as authorities grow frustrated with their reluctance to lend for productive investment, even as they support a debt-fueled stock market rally.
On visits to major state-owned banks, the Industrial and Commercial Bank of China Ltd (ICBC) (601398.SS) and China Development Bank (CDB), Li urged more lending to small and medium-sized enterprises, the government said on its website.
The visits came after figures this week showed China’s economy grew at its weakest pace in six years in the first quarter, expanding 7.0 percent compared to 7.3 percent in the previous quarter.
“China’s economic growth is within a reasonable range, but downward pressure (on growth) is increasing,” Li was quoted as saying.
To cope with the pressure on economic growth, China will set prudent and “flexible” monetary policy and increase its “targeted” policy easing, Li said.
China’s banks made 1.18 trillion yuan ($190 billion) of new loans in March, beating expectations as authorities ramped up efforts to support the economy, even though data suggests credit has not yet flowed into key sectors.
As Chinese banks become more profit-oriented, experts say they seem less interested in supporting policy goals with high risk, low returns, or both.
“(Banks) will do some deals as a gesture, but no, money won’t go in that direction,” said a banker at one of the top five listed state-owned lenders in reaction to Li’s comments, explaining that banks wanted acceptable risks to lend.
Beijing wants banks to lend more to smaller private firms that drive the bulk of growth, but bankers say they run a higher risk of default than state-owned giants, given endemic book-cooking.
And they have proven reluctant to resume lending for real estate, a major economic driver of demand that has been on the slide for months. Property investment hit a trough in the first quarter, despite easier policies.
Instead, banks have leapt to extend margin finance for a stock market rally that analysts fear has become completely disconnected from fundamentals.
Beijing has cut benchmark lending and saving rates to spur lending and cushion the economy.