Chinese bank loans reach 27 per cent of 2009 GDP

In the wake of the global economic crisis, Chinese banks went on a contnuous lending spree that continues till date and have so far doled out 9.5 trillion yuan ($1.4 trillion) in new loans in 2009, which works out to a whopping 27 per cent of its 2009 GDP. It also represents a 60-per cent rise over the 5.07 trillion yuan in loans extended last year.

Heeding the government's diktat  to increase lending this year to help fend off the global financial crisis, Chinese banks raised lending in the first 11 months to 9.5 trillion yuan ($1.4 trillion) - almost double the government's target of 5 trillion yuan for the entire year.

With a majority of these loans being used to prop up the stock and property markets, the prices in these sectors have skyrocketed, creating yet another bubble.

Acording to The Wall Stret Journal, "This binge, supplied by China's state-owned banks, could one day effectively become a fiscal stimulus if a significant number of these loans go bad and Beijing needs to recapitalise the banks using tax receipts. But for now, China's stimulus has been mostly monetary."

Analysts eying the Chinese economy say that about 20-30 per cent of the new loans will turn bad when the bubble finally bursts.

China's state owned enterprises  have been loaned about three times the amount given during the same period last year, while the country's public sector companies registered a slump of 32 per cent in their profits due to the continuing weakness of global economy.