China’s four big state-owned banks are reportedly resisting pressure from government planners to offer cheaper loans even as officials want lower interest rates to finance the 700 billion yuan ($110 billion) of infrastructure projects being advanced to stimulate the slowing economy. According to the 21st Century Business Herald (in Chinese), the banks are fearful of the squeeze on their profits and balance sheets while they are still potentially carrying scads of bad debt on their books from the 4 trillion yuan stimulus that followed the 2008 global financial crisis.
Local governments have budgeted for less than a third of the cost of the latest round of investment spending on roads and railways. The rest will have to be covered with bank loans. The banks’ credit quotas for the year still have room to accommodate this. The question is at what rates and to what extent private borrowing is priced out. Bloomberg reports that the banks are already limiting their corporate clients to 10% discounts of the benchmark lending rate, even though they have been free since July to offer up to 30% discounts, a move made by the central bank to encourage business borrowing. There are also concerns that banks are delaying new consumer loans. A case of what one hand stimulates, the other discourages.