Sub-prime loan disbursement risk goes up with increased lending in China

Data suggests policymakers in China is getting, what they have been looking for, increase in lending. However it comes with heavy additional risks as Chinese economy is slowing down making the rate of return on many projects unattractive. Some of the projects, taken up regional governments as well as businesses may turn out as crap if the economy starts slowing down considerably.

• Latest data shows, "aggregate financing," the broadest measure of Chinese new credit available, jumped to Yuan 1.080 trillion ($169 billion) in August - up 33% from July.
• Among that, loans from normal banking sector were at Yuan 809.6 billion, suggesting shadow banking sector playing greater role in the rise.

Details suggest shadow banks played more of a role last month. "New yuan loans", which track loans in the normal banking sector, were Rmb809.6bn, just under three quarters of the total, according to Bloomberg. In July, new renminbi loans were higher than the aggregate figure, suggesting shadow activity had contracted for the first time in six-and-a-half years.

Heavily financing Chinese companies, who chose to halt trading in their shares during massive sell offs recently, raises the risk of financing non-viable companies or projects.

Peoples Bank of China (PBoC) has taken steps to curb liquidity pressure in domestic front as country is facing outflow in its capital account, pushing interest rates higher in domestic front. However these moves comes with risks associated for future, which could cause havoc for the economy, if growth rate falters further.