The Chinese government’s stimulus package has a total of 4 trillion yuan ($586 billion), but the chief auditing agency of the world’s third largest economy, China’s National Audit Office, has discovered that most funds availed of through lending and credit programs have been misused, diverted, and did not go to their actual intended investments as were indicated on their loan applications. Some loans have been used for financial speculation or deposited in banks to earn interest.
Correcting the anomaly, the China Banking Regulatory Commission issued new rules that stipulate a standard where ‘lenders must assess the risk of fixed-asset investment loans on a regular basis and loan agreements must be clear.’ Another stipulation states that ‘any loan amount that exceeds 5% of the project investment or is greater than five million yuan should be disbursed to the parties contracted to do the work, rather than to the borrower, though the borrower will be responsible for the loan and for full disclosure about its use.’
China’s stimulus program, began in November last year, has accelerated the country’s urban fixed-asset investment which is deemed as a key economic growth driver, especially in a time of credit crunch and financial crisis.
