Most Bank Lending Going to Maintenance and Old Projects, Not Growth

A Sinolink Securities survey on the use of loans granted to 88 listed companies shows that, with a very loose monetary policy and adequate bank liquidity, firms�credit conditions have been greatly improved. However, upstream industries, such as real estate, electrical equipment, coal, cement, non-ferrous metals, and machinery, are experiencing the highest credit growth, while for downstream industries, including agriculture, livestock husbandry, and fishing, medicine, mass media and tourism, paper making, aviation, and textile, the money is not flowing quite so freely.

Lower credit growth in downstream enterprises may be due to their short investment terms and quick adjustment. The majority of enterprises in these industries are private enterprises, which are more flexible in operation. Most upstream enterprises, many SOEs, have long investment terms and are comparatively slow in adjustment. 

Despite loose credit policies, many strong privately-owned firms have shown no great willingness to borrow. The majority of them are in downstream industries such as home appliances, electronic components, clothing, agriculture, livestock husbandry and fishing, medicine, and paper-making, and are quite cautious in investment, which may be the reason for their low credit demand.

Credit conditions for all private enterprises have not necessarily improved. Banks are willing to lend money to these firms because they are mostly good companies in their industry.

54% of the total loans are being used to repay existing debt and supplement working capital, mainly by downstream and consumption industries. Cash loaned to steel companies has mainly gone to supplement working capital, as current investment in this industry is low. The remaining 46%, granted mainly to upstream industry enterprises or those with long investment terms, are used to finance new projects or expand existing projects.

In fact, most projects now under construction are pre-existing ones, in the electrical equipment, non-ferrous metals, machinery, home appliances, media, and tourism industries, and only a few are newly established. Few new projects have been started by private companies.