New bank loans to China's corporate sector declined sharply by 27%

Find out what went wrong in 2012.

According to Bernstein Research, looking back through the past 4 years, we found mid-to-long term loan growth outpaced that of the total loans during the 2009-10 expansionary period.

This was followed by a tightening period during which midto-long term loan growth lagged that of total loans. These medium- and long-term loans are often used for capital expenditures and other long-term investments which best translate into future economic growth. 

Here's more from Bernstein Research:

In 2012, RMB 8.2 trillion of new loans were issued, up from the RMB 7.5 trillion of loan growth the previous year. Within that, we saw total new loans going to corporations in China rise from RMB 5.0 trillion in 2011 to RMB 5.7 trillion in 2012. Despite the increase in the amount of new loans issued to corporates in 2012, there was a sharp decline in the tenor of the new bank loans made to the corporate sector.

While total new loans issued to the corporate sector grew by 12% in 2012 from 2011 levels, a large portion of the increase was driven by short-term discounted bills issuance which was typically used to finance trade or working capital demands (and thus does not represent long-term credit demand). 

Excluding the impact of these short-term instruments, new loans to the corporate sector would have  increased by just 2% in 2012. And, the true test of the demand for long-term credit can be captured by the increase in medium- to long-term loans. In 2012, this category of corporate loans declined by 27%.

Despite these statistics, it appears that long-term corporate credit demand has not actually fallen. Examining the areas of social financing that typically have a duration of more than 1 year, we've found that the combined new issuance of these forms of corporate credit increased by 68% in 2012 to reach RMB 4.8 trillion, nearly the total level of new loan issuance to the entire corporate sector in 2011.