Bubbles Fears Prompt China To Curtail Bank Loans 

Mounting bubble fears have triggered new guidance from Chinese regulators instructing banks to scale back loan amounts in 2021, Reuters reported on Friday (March 5), citing sources.

Foreign and state-owned lenders in China were told to curtail lending in order to guard against risks that are starting to surface from bubbles in domestic financial markets, sources told Reuters.

Further, the China Banking and Insurance Regulatory Commission (CBIRC) is investigating whether business loans were used for personal use, which is explicitly in violation of the law, the sources said.

“A large amount of money in the name of business loans had flown into the property and stock markets during the pandemic last year,” one of the sources told Reuters. “Banks are scrambling to collect back loans issued last year and will not extend such loans.”

Chinese regulations mandate that loans extended to commercial enterprises be utilized for overhead directly related to conducting business, such as rent or supplies. China explicitly bans business borrowers from using the funds for property or other investments.

During the course of the coronavirus pandemic, China infused the economy with credit support meant to stimulate activity — but instead, the money went towards investments that further inflated the financial bubble in the markets, sources told Reuters. 

Last year China instructed financial institutions to increase business loans and decrease interest rates. A new government report indicated that big banks upped loans to micro and small businesses by 50 percent, with plans to further increase lending by 30 percent in 2021.

CBIRC Guo Shuqing said earlier this week that there was real concern about bubbles bursting in foreign markets and it’s the central threat to the real estate market in the country, per Reuters.

The CBIRC last month issued guidance restricting online lending by commercial financial institutions. The new rules scale back loan amounts based on capital and restrict the balance of joint internet loans to 50 percent of the balance sheet.