Commentary: China's credit surge augurs no restart of massive stimulus

Data showing an increase in loans has fanned speculation that the government may turn to a massive stimulous program, a move that would pose a risk to global financial market.

Upon closer inspection, however, these fears are unfounded.

It is normal for a country to adopt an accommodative policy to underpin a slowing economy, and China will continue to this end until the economy fully restores its strength.

China will not resort to large stimulus measures; policymakers are more than aware of the consequences of such a short-sighted program. Moreover, the country is still addressing the side effects of the previous stimulus package, such as overcapacity.

According to official data, China's new yuan loans rose to a record of 4.61 trillion yuan (about 712 billion U.S. dollars) in the first quarter, sharply up 930.1 billion yuan from a year earlier.

The situation is reminiscent of the credit build-up during the global financial crisis starting in 2009 when the authorities turned to credit to bolster the economy.

However, instead of being channeled to investment projects with short-term impact on GDP, as was the case back then, the lion's share of the current new loans ended up funding long-term programs, supporting small businesses, and facilitating consumption, such as housing.

This rapid increase in loans is temporary.

The beginning of the year saw a slew of new measures to stabilize growth and the start of numerous infrastructure projects. Recovering international commodities prices also led many firms to start replenishing their inventories.

These temporary, seasonal factors mean that the credit boom in the first quarter is unlikely to last long.

In addition, stimulus is unnecessary, as the Chinese economy is showing increasing signs of stabilization, meaning there is no risk of major turbulence or crisis for the global economy.

Most importantly, massive lending to reboot short-term economic growth flies in the face of the country's policy principles, not least because of the weight put on supply-side structural reform to cultivate new growth drivers under the "new normal."

For policymakers, who have put deleveraging high on the agenda to ward off long-term financial risk, a continuous credit boom is out of the question.

Propping up growth aside, monetary policy will be designed to prevent financial risks and stop firms' leverage ratio from rising too fast. The effect on consumer prices has to be taken into account.

All in all, resorting to massive lending to boost the economy is like quenching a thirst with poison. Those who fear a large-scale stimulus can rest assured. Endit