Chinese banks reportedly issuing ‘phantom loans’ to hit targets amid weak economy
Chinese banks are reportedly resorting to “quick-lend-and-recover” tactics to meet government-mandated lending quotas as real-world demand for credit falters in the slowing economy.
According to bankers, this practice involves issuing short-term loans, only to reclaim them weeks later. The strategy helps banks meet official targets on paper, but the money never makes it into the real economy.
Regulators have pledged to crack down on this behaviour, which they describe as “funds circulating within the banking system.” State-owned banks have previously been found issuing loans just before assessment periods, only to withdraw them shortly after.
The credit squeeze is being compounded by other factors. The Ministry of Finance has recently intensified scrutiny of financial guarantees for local government financing vehicles (LGFVs). This has prompted banks to raise their lending thresholds, further limiting credit access for this sector.
This struggle is reflected in stark economic data. In July, new yuan lending shrank for the first time in 20 years. In September, loan growth (excluding lending to other financial institutions) rose by just 6.4% year-on-year, the weakest rate since records began in 2003
