It will be a worrisome development if China experiences another credit binge. Official data measuring new yuan-denominated loans for June has yet to be unveiled, but financial institutions have forecast that the figure will exceed 1.3 trillion yuan ($194 billion), according to media reports. If this prediction is proved correct, China's new yuan lending will have passed the 7 trillion yuan mark in just six months.
Concerns about a possible overexpansion of new loans have been rekindled, with some analysts warning that loose credit is likely to once again fuel speculative trading, thus driving up financial risk. A high leverage ratio will bring huge risks to the economy, and may even pose systemic financial risks if the situation cannot be controlled.
China witnessed a rapid rise in new yuan lending at the beginning of this year, with official data showing that Chinese banks made a record 4.6 trillion yuan in new loans in the first quarter. The overexpansion of new loans aroused vigilance in various circles, and after several influential economists called for reducing leverage gradually, a People's Daily article in May quoted a warning by an "authoritative person" that China cannot rely on increasing financial leverage to spur economic growth.
As a matter of fact, China saw a substantial decline in new yuan loans in April and May after officials and economists highly stressed this issue. But the most recent reading might show the rise of new growth momentum.
It is understandable that some local governments may turn a blind eye to or even encourage commercial banks' expansion of new credit at a time when people's attention to this issue has tapered off, but this will certainly pose a hidden danger to the economy. There are sufficient reasons why an overexpansion of lending and high leverage should be considered a cause for alarm, as speculative actions in property and commodities markets earlier this year may have been only the tip of the iceberg. China's efforts to move away from debt-driven stimulus must not be abandoned halfway along the line.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn