China Audit of State Bank Loans to Begin Soon

飞雪寒冰

The National Audit Office (NAO) will soon carry out an inspection of policy banks and some state-owned banks to verify that loans they made in the first half were properly channeled to economic stimulus projects, the 21st Century Business Herald reported on August 20, citing sources.

An official with a large state-owned bank who deals with audits said preparations for the inspection are already underway, while a source from another bank said the audit will likely begin in September, the newspaper said.  

"Unlike routine asset and accounts audits, this will focus on policy implementation," the audit official said.

The audit is expected to focus on government financing platforms, loans disbursed for infrastructure projects, and corporate lending, according to the report.

On May 18, the NAO announced its intention to verify banks' compliance with government policy, including the ultimate destination of stimulus lending.

China's economy grew 7.1 percent year-on-year in the first half, rebounding from 6.1 percent in the first quarter, buoyed by the easy availability of credit and a 33.5 percent rise in fixed-asset investment.

On July 27, the China Banking Regulatory Commission said banks must apply credit standards more rigorously for fixed-asset lending, noting that lenders are neglecting to track the flow of loans.

飞雪寒冰

Total bank lending in the first six months reached a record 7.4 trillion yuan, driven by central government's 4 trillion yuan stimulus package and the central bank's relaxed monetary policy.

Spectacular gains in the benchmark Shanghai Composite Index, which rose 61.5 percent in the first half, coupled with surging land prices have raised fears that a large portion of the funds were diverted to stock and property speculation.  

Investment in domestic property development rose almost 10 percent year-on-year to 1.45 trillion yuan in the first half, according to the National Bureau of Statistics. The official China Daily reported in July that state-owned developers purchased 60 percent of the 10 most expensive land sites on sale in June, with a subsidiary of state-owned Sinochem Group paying 14,000 yuan per square meter for a plot in Beijing, the highest rate in the country at the time.

Analysts have also questioned how the funds have been allocated, noting that such a large stimulus cannot be reconciled with persistent deflation from February to July.

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