Why Investors Care
New bank lending is the primary source of credit for Chinese enterprises and consumers and therefore play an important role in determining both the strength of domestic activity and inflation pressures. Growth in bank lending is also used by officials as one of their major policy tools to regulate the economy, with changes in the annual quota used to control credit growth.
Credit growth can hold positive or negative implications for the economy and markets. Economic activity is stimulated when enterprises and consumers borrow within their means to fund investments or make major purchases. On the other hand, if borrowers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. That could put a big dent in economic growth.
The demand for credit also has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business.