OPINION

Comforts and Concerns About Social Financing

The total social financing, China's widest measure of credit, in the first half of 2013 reached 10.15 trillion yuan ($1.65 trillion), up 2.38 trillion yuan ($388 billion) from the same period last year, said the People's Bank of China, the central bank, on July 13.

Newly added yuan-denominated loans reached 5.08 trillion yuan ($828 billion), up 221.7 billion yuan ($36.1 billion) from the same period last year, accounting for 50 percent of the total social financing, 12.4 percentage points lower than the same period last year.

The proportion of yuan-denominated loans is at a historic low while corporate bond financing is at a record high. Corporate bond financing, combined with the equity financing on the domestic stock market by non-financial enterprises, accounted for 13.3 percent of the total social financing, a sign that shows more companies gained financing without the presence of financial institutions but directly from the capital markets.

In the first half of 2013, various financing measures were used by the real economy—the part of the economy that is concerned with actually producing goods and services, as opposed to the buying and selling in capital markets—such as undiscounted banker's acceptance bills, trust loans and entrusted loans. They totaled 2.86 trillion yuan ($466 billion), up 1.43 trillion yuan ($233 billion) from the same period last year. This is a comforting fact, signaling that there are more diversified financing measures for the real economy, instead of only relying on bank loans. The allocation of capital has been optimized to better meet the financing demands of the real economy.

However, in the first half of 2013, the total social financing witnessed several structural problems. First, despite the historic low proportion of loans, the amount of newly added loans was still too large. Newly added yuan-denominated loans reached 5.08 trillion yuan ($828 billion), up 221.7 billion yuan ($36.1 billion) compared with the same period last year. Rampant credit expansion is one of the reasons for the cash crunch at the end of June.

Second, the newly added loans mostly flew to the property market, while the amount that went to companies in the real economy has yet to be improved. The newly added individual loans totaled 2.07 trillion yuan ($337 billion) in the first half of 2013, nearly 60 percent of which was mortgage loans. Amid a sluggish economy and lackluster stock market, bank loans are finding their way to the more profitable housing market.

Third, shadow banking continued to grow, including trust loans and entrusted loans. Most capital in the shadow banking system went to the real estate market and local government financing platforms, a main reason for the rocketing price of land and housing prices in the first half of 2013.

Finally, a part of total social financing only flew between financial institutions, such as the interbank lending market. This not only pushed up financial bubbles but also damaged the whole economy, especially the real economy.

The real economy is the national economy's foundation and a major source of profits for financial services. The financial sector, if separated from the real economy, is hazardous to a country's economy. Financial resources flocking to the real estate sector will also cause simmering risks. Urgent tasks for the government include strengthening property curbs, strictly prohibiting credit from circulating within the financial system, and guiding financial resources to support the real economy.

This is an edited excerpt of an article by Yu Fenghui, a financial commentator, published in Shanghai Securities News

THE MARKETS

Alibaba Investment

E-commerce giant Alibaba announced on July 16 that it has invested in Qyer, a leading tourism website in China. The amount of the investment was not disclosed.

Qyer will provide overseas travel packages to Taobao Trip, a flight and hotel aggregator under Alibaba's flag, according to people familiar with the matter.

Qyer, founded in 2004, provides travel guidebooks and hosts online discussion forums to about 10 million users.

Alibaba has recently made a string of deals with emerging IT companies, including investments in Sina Weibo, Amap and Xiami Music.

Xiaomi Boom

Chinese smartphone manufacturer Xiaomi Corp. said on July 16 that it sold 7.03 million mobile phones in the first half of this year and realized unaudited revenue of 13.3 billion yuan ($2.16 billion).

Xiaomi's half-year revenue in 2013 exceeded the company's 12.6 billion yuan in 2012 annual revenue.

The company is on track to reach its annual goal of selling 15 million Xiaomi smartphones by the end of the year, said the company.

As of June, Xiaomi had more than 14 million smartphone users on the Chinese mainland, Hong Kong and Taiwan.

Lei Jun, founder and CEO of Xiaomi, attributed the good performance to the company's branding, better industry support and improved logistics.

Founded in 2010, Xiaomi has experienced rapid growth. The company launched its first smartphone in August 2011 and quickly gained substantial market share, beating some traditional mobile phone giants.

Xiaomi is now directly challenging Samsung Electronics Co. Ltd. and Apple Inc. in the Chinese market. Apple sold 7 million iPhones in China in the first quarter of 2013.

NUMBERS

14 %

Growth rate of M2 (broad money supply) in the first half of 2013

68.08 tln yuan

Amount of outstanding yuan-denominated loans at the end of June 2013

10.15 tln yuan

Size of China's total social financing in the first half of 2013

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