Chinese banks gave out more than USD 1 billion during the first 6 months of 2009. This is equal to 25% of China's total GDP. The plan is to boost the economy by sponsoring viable projects that will create new jobs and increase productivity. However, even according to Chinese government sources, about 20% of these new loans already found their way to the stock exchange. Prof. Michael Pettis from Beijing University, estimates that 20-33% of these new loans go directly to the stock exchange, real estate market, or even the gaming tables in Macau.
This means that a big chunk of the loans are not even going to the projects they are supposed to sponsor and are instead used to inflate prices in other parts of the economy. It is not surprising, then, that the Shanghai stock market went up about 70% since the beginning of the year, and that real estate prices in many Chinese cities are going up, despite declining occupancy rates.
Continue reading Where are China's New Bank Loans Going? >>>.