In January 2009, the Renminbi loan saw an increase of 1.62 billion yuan (USD 236.9 billion), 814.1 billion yuan (USD 119.03 billion) more than that of the same period last year. Where will the money be put in? That’s what most people concern.

On February 12, an official from the People’s Bank of China (PBC) said that the PBC was trying to make clear which fields will those money be put in. On the same day, the directors of many commercial banks in China said that they had received the notice from the PBC, which consisted of four forms. The PBC required those commercial banks to report the details of the Renminbi loan which the financial institutions issued to the public in this January.

“Because it is an interim investigation, we have no similar statistical system. That means we have to recap the loans. We have limited time before the deadline as required by the PBC,” said a director of one of those large commercial banks.

Attention to Six Kinds of Loans

In December 2008 and the following month, the drastic increase in credit occurred in nearly all the developed provinces with large amount of investment in China.

According to the statistical data of the PBC, at the end of this January, the amount of the loans of the Renminbi and foreign currencies issued by the financial institutions in China saw an increase of 1.56 trillion yuan (USD 228.1 billion), with a year-on-year growth of 19.8%. Hereinto, there was an increase of 253.9 billion yuan (USD 37.1 billion) in the loans of Jiangsu, leading the whole nation. The amplification was 22.37%.

While the provinces or municipalities ranking from No.2 to No.6 were Guangdong with an increase of 182.3 billion yuan (USD 26.7 billion) or 12.64%, Shandong with an increase of 133.9 billion yuan (USD 19.6 billion) or 17.70%, Zhejiang with an increase of 118.0 billion yuan (USD 17.3 billion) or 19.29%, Shanghai with an increase of 78.0 billion yuan (USD 11.4 billion) or 12.36% and Hebei with an increase of 69.0 billion yuan (USD 10.1 billion) or 16.70%.

The notice mentioned above required all the financial institutions in China to make clear the respective amount of loans drawn by the local governments or interrelated with the enterprises’ own investment in the long- and middle-term loans, short-term loans and commercial paper financing issued in this January.

What the PBC mainly focuses on are whether the large-amount credit is put in the government investment projects and whether those money was put into the six fields in which the central government newly added 100 billion yuan (USD 14.6 billion) in 2008.

The six fields include: guaranteed housing construction (10 billion yuan or 1.46 billion US dollars), livelihood improvement program and infrastructure construction in the rural areas (34 billion yuan or 4.97 billion US dollars), large infrastructure construction such as railway, highway and airports, etc (25 billion yuan or 3.66 billion US dollars), development of health, education, culture and other social businesses (13 billion yuan or 1.90 billion US dollars), energy-saving and emission-reduction and ecological construction programs (12 billion yuan or 1.75 billion US dollars) and independent innovation and industrial structure adjustment programs (6 billion yuan or 877.3  million US dollars).

“In last September and this January, we examined and approved many projects, like railway constructions,” said a credit grantor from a large commercial bank. When the new investment plan was given out, the use of the project loans is not so fast because the customers usually take the money after a while. “Each bank approves the project loans, but the customers usually take money according to the progress of their projects. They can’t take all the money in a lump sum.”

On February 12, a credit grantor of a large bank’s Shanghai branch said that because Shanghai shared a little of the central government’s 4-trillion-yuan investment, the investment programs that push the increase of the loans mainly come from Shanghai municipal government. In January, there were some large-scale projects concerning Shanghai World Expo, subway transportation and sewage treatment receiving the loans.

Nevertheless, according to a director of a Zhejiang-based shareholding commercial bank, due to the small number of large industrial device in Zhejiang, the loans in this province are mainly put into the construction of the infrastructure, such as railway, highway and subway. Among them the highway construction gets more loans than the other programs.

On  February 5, National Association of Financial Market Institutional Investors (NAFMII) held the Financial Market Operation Analysis Conference 2009. In the conference, Ruan Jianhong, deputy Director of the Financial Survey and Statistics Department of the People’s Bank of China, said that the year-on-year growth of the long- and middle-term loans in the first ten months of 2008 decreased a little; and in the last two months, the long- and middle-term loans re-gained its high growth rate.”

In Ruan Jianhong’s opinion, the phenomenon mentioned above is closely related with the economic stimulus package of the government. He said: “the long- and middle-term loans are mainly put into the infrastructure field. They usually concentrate on the generation and supply of electric power, gas and water. In addition, the amount of loans in transportation, water conservation and public devices also sees its increase, and the same thing also happens to the manufacturing industry. However, there are fewer and fewer loans in the real estate industry.”

Another banking man attending the conference said that the survey result showed that the increase in the loans is mainly attributed to the local governments instead of the enterprises. In order to promote the investment, the local governments appoint some enterprises with good performance and enough power to assume some investment projects. The banks, which know that these are government projects, are willing to lend the large-amount loans. When starting, the projects need nothing from the enterprises; instead, they depend on the starting capital and the loans from the bank. That’s why the amount of loans had great increase in January.

However, this banking man said that the high increasing rate of the loans in January could last for long. “The programs having started at this moment are all the ones examined and approved by the National Development and Reform Commission before the end of November 2008. In consideration a 3-month release period, the increasing amplification may fall down in April.”

Direction of Commercial Paper Investment

In this January, the commercial paper financing in China saw an increase of 623.9 billion yuan (USD 91.2 billion), accounting for 41.6% in the total amount of loans lent to the enterprises. It also takes 38.5% in the 1.62-trillion-yuan increase in the loans.

The notice also required the banks to fill a survey form about the investment directions of the commercial paper financing concerning the enterprises’ own investment in January (limited to the discounted commercial paper). The industries are classified according to the Classification of National Economic Industries issued by General Administration of Quality Supervision, Inspection and Quarantine of the PRC in 2002, including agriculture, forestry, livestock, fishery, mining, manufacturing, and generation and supply of electric power, gas and water.

According to the above-mentioned director of a Zhejiang-based shareholding commercial bank, the discounted commercial paper is mainly for the manufacturing and processing enterprises which have trade background. However, the discounted note is useless in the infrastructure field. So, there are not many, if any, enterprises using the discounted note.

“Judged from the available data, most of the customers applying for the discounted notes are large-sized enterprises, especially the steel enterprises,” said a man working in the commercial paper department of a Shandong-based commercial bank.

In contrast, a credit manager of a Shanghai-based bank said that the discounted commercial paper business of his bank was not well developed. This is mainly attributed to the low profit ratio of business and the demand of the risk control. In consideration of the risk, some large banks take advantage of their strength in capital to buy the commercial paper from the other banks.

What needs attention is that many large enterprises use the commercial paper as a kind of financing tool in order to lower the financing cost. The problem of “financing paper” arises. The so-called “financing paper” is that the enterprises get the bankers’ acceptance bills and then gain the cash through discount from the banks. The enterprises substitute this “financing paper” for the ordinary loans through credit enlargement.

“It is not very easy to investigate the identity of people using ‘financing paper’, because the enterprises can give out the materials to prove their true trade background,” said the above-mentioned credit manager. He also attributed his bank’s less developed discounted commercial paper business to this factor.

But according to some experts in commercial paper, if an enterprise plans to realize and enlarge the value of the financing function of the commercial paper, the authenticity of the certification material for its trade background and the identity of the applier for discounting are suspicious.