Michael at ChinaStakes.com opines on China’s overall surge in lending:

Credible rumors suggest that new loans in June will hit RMB 1.2 trillion or more, as banks rush to inflate their quarterly loan numbers, just as they did in March, on the assumption that any cap in quarterly loan growth will be based on the previous quarter’s numbers. I would argue that new lending in 2009, running at 2 to 3 times the new lending over the same period in 2008, is not at all normal and is very unlikely to be healthy. Here, by the way, is the breakdown for this year and last year (the June number is a rumored projection, so it may change):

New Loans	2008	2009
Jan	804	1,600
Feb	243	1,100
Mar	286	1,900
Apr	464	591
May	319	665
Jun	332	1,200
Half Year	2,448	7,056
Jul	382
Aug	272
Sep	378
Oct	182
Nov	478
Dec	772
Total	4,912

Expect Chinese banks to experience much higher non paying loans.  What are the consequences of higher NPL’s in a controlled economy like China’s?  Well, Michael thinks it will be the same as in (the controlled economy of) the United States:

If NPLs rise sharply, the banks must be protected and recapitalized. Unfortunately this will mean keeping lending rates low, to slow down NPL accumulation, and deposit rates much lower, to maintain banking profitability. As I have discussed many times before, most explicitly in my June 3 entry, low lending rates are one of the most powerful of China’s production subsidies, and low deposit rates, by acting effectively as a significant tax on household income, will significantly constrain consumption growth – basically households will be heavily taxed to protect borrowers and to recapitalize banks, and this cannot help but affect consumer spending. The consequence is that banking policies will be set directly in opposition to the necessary transition that China must make as the US trade deficit continues its long term decline.

Bloomberg reports about 20% of recent new loans (some $170B) has gone into the Chinese stock market.  And TPC has a post out today where some scholar’s model predict a bubble about to pop in the Chinese equities.  With a tripling of lending in the first half of the year from last year its no wonder that large portions would end up in the stock market.  It’s crazy and shows a very desperate Chinese government.  Imagine if lending in the US had tripled in one year!  Look out below when these loans come due.