What Is an Investment Credit?

Credit investment refers to the investment of funds from credit lending institutions such as banks. Credit investment is the main cause of economic growth, excessive investment growth and inflation.

Credit investment

1. Tightening credit becomes a restraint

Relying heavily on credit funds for investment in fixed assets, seriously ignoring the fundamental role of capital funds in economic operations and economic development, and resulting in a serious lack of capital funds in both the real economy sector and the financial sector. After 1995, the balance of deposits in commercial banks and other financial institutions was serious. At the end of 2004, the balance of deposits had reached nearly 7 trillion yuan. But at the same time, many enterprises are seriously lacking in production and operation activities. A relative surplus of funds is actually a relative surplus of debt funds; a relative shortage of funds is a relative shortage of capital funds. In this context, the use of credit funds for investment in fixed assets, once the investment project is difficult to complete, it means the loss of bank loans; meanwhile, after the construction project is put into operation, the related enterprises also carry a heavy debt burden. It is difficult to pay the principal and interest as scheduled, and bank loans will be converted into non-performing loans.

The emphasis on credit-type investment has also suppressed the growth of capital funds of financial institutions themselves, leaving serious hidden dangers to the operation of financial institutions. In December 2006, Chinese-funded commercial banks will end the transition period of joining the WTO. After that, domestic commercial banks will strictly abide by the 8% capital adequacy ratio. But by the end of 2004, the capital adequacy ratio of most Chinese-funded commercial banks was only about 5%, which means that according to the provisions of the Basel Accords, these commercial banks have actually lost their qualifications to issue loans. If a Chinese-funded commercial bank wants to meet the 8% capital adequacy ratio, it needs to add more than 800 billion yuan of capital funds based on the loan balance at the end of 2004; if it is expected to add 2.5 trillion yuan of loans in 2005, it will need to increase capital 200 billion yuan in sexual funds. The shortfall in capital funds totals more than 1 trillion yuan. If this gap cannot be filled in this year and next, the domestic loan market in China will be ceded to foreign commercial banks after 2007, and the consequences will be disastrous. ^[1]