"In its latest monetary policy report (in Chinese), China’s normally tight-lipped central bank offered various explanations, some more reassuring than others:
• Loans going into areas that don’t immediately generate growth — like land needed for construction projects.
• Hoarding of cash by businesses at a time of economic uncertainty, with some businesses using funds to make more loans at a higher interest rate.
• Old industries fading away and new industries firing up both need credit, but neither generates stellar output.
• A more sophisticated financial system takes longer to get credit to end users.
The central bank sees risks — especially with businesses sticking to their credit-hoarding ways despite a shift to lower potential growth. But overall they strike a reassuring tone. Wide gaps between growth in credit and the real economy are not uncommon, they say, especially during slowdowns".
Source: WSJ
