China’s credit binge is well and truly over. In 2009 and 2010 loan growth exceeded nominal gross domestic product growth by 27 and 9 percentage points, respectively, but so far this year it has merely kept pace. The China Banking Regulatory Commission, moreover, has begun to fret about the risks of a shortage of credit to small and medium-sized enterprises. About time.

New loan data for the month of May confirmed a general tightening, albeit following breakneck growth: M2, the broadest measure of money supply, rose by 15.1 per cent, the slowest rate since 2008. Yet it is among China’s SMEs that credit contraction is most keenly felt. As CBRC chairman Liu Mingkang pointed out eight years ago, when explaining why China would rather not implement Basel II standards requiring higher risk weightings for SME loans, companies meeting the Swiss institution’s definition (less than €50m of sales) account for more than 90 per cent of lending lists at some of the nation’s big banks.

In recent months, many SMEs have been dropped, as banks shrink customer bases to meet the maximum 75 per cent loan-to-deposit ratio. For those customers that remain, moreover, new loans are being priced more expensively: banks are seeking to protect margins eroded by asymmetric actions from the People’s Bank of China, which has raised deposit rates by more than lending rates to reduce savers’ negative real return. Stories abound of missed utilities payments, surges in interest rates in the grey lending markets, and collapses of unregulated credit unions.