Chinese Banks Find their Credit in High Demand

The surge in Chinese lending, triple the 2008 rate, has provided a lifeline to international corporations during the worst recession in decades, and it reflects a diversification in China's global economic role beyond its holdings of vast amounts of U.S. government debt.

Over the first nine months of 2009, new lending by Chinese banks has injected $1.3 trillion into the world economy, according to statistics from the People's Bank of China, which functions as China's central bank. The beneficiaries have included U.S.-based Southwest Airlines, the Netherlands' Aercap airplane leasing company, Civil Aviation Authority in Dubai, and Foster's brewery and Woolworths supermarket chain in Australia.

China's banks have been signing so many new loan contracts so quickly that the country's banking regulatory commission recently warned them to avoid the "blind" pursuit of size lest they run into the same troubles as their Western counterparts.

The bulk of loans from Chinese banks are staying in the country, and the central bank has not released an official breakdown between foreign and domestic loans. But bank analysts who have reviewed the public data estimate that the amount going to overseas companies has doubled in the past year to represent roughly 11 percent of all new loans, a shift that would appear to reflect an effort by China to diversify its holdings beyond U.S. Treasurys.

As recently as five years ago, China's big state-owned banks were seen as old-fashioned, bureaucratic behemoths that could barely handle personal checking accounts, much less the complexities of international financing. But by the time the financial crisis hit in 2008, they were in a strong position, thanks to management shake-ups and an injection of capital from the Chinese government that helped them get rid of their nonperforming loans.

The biggest of the state-owned banks, the Industrial and Commercial Bank of China, is now the world's largest by market capitalization (although that status changes day to day) and the most profitable.

As of October 2009, Chinese banks held $5.8 trillion in outstanding loans, outpacing Japan, according to the International Monetary Fund. That figure reflected a 22 percent increase over the first 10 months of the year, a period in which outstanding loans held by U.S. banks shrank by 7 percent, to $6.7 trillion, and loans held by European banks stayed flat, with little in the way of new lending.