China’s Banks Use ‘Quick-Lend-and-Recover’ to Fake Credit Growth
Chinese banks have been resorting to a controversial practice to meet lending targets. Known as 'quick-lend-and-recover', this method involves rapidly issuing and then reclaiming loans, often within a month. This strategy, however, is not boosting the real economy as intended.
For years, China fuelled credit growth through substantial infrastructure and real estate investments. But this engine has now slowed down. Despite cheaper and more accessible loans, Chinese citizens are not borrowing, spending, or investing more. Banks are facing intense pressure from authorities to meet or exceed last year's lending targets.
To circumvent this issue, banks are increasingly using the 'quick-lend-and-recover' practice. This involves offering short-term loans to customers, who then deposit the money and repay the loans within a month. The banks cover the interest costs themselves. Similar offers are being extended to retail clients, with a 5 million yuan ($700,000) loan recently given to an auto parts manufacturer with a one-month repayment term.
Authorities have pledged to prevent such practices, aiming to stop money from circulating within the banking system and ensure it flows into the real economy. However, loan data manipulation has previously drawn public scrutiny in China, suggesting a persistent challenge in enforcing these regulations.
The number of borrowers is expected to shrink further by the end of the year, indicating a potential slowdown in China's credit growth. Authorities must address the root causes of this issue to ensure sustainable economic growth and prevent further manipulation of loan data.
