Banks in China issue 'phantom loans' amid pressure to hit targets

Mr Jerry Hu, who owns an auto-parts firm in eastern China, was approached in October with a strange request. A loan officer from one of the country's biggest banks asked him to borrow five million yuan (S$914,000), deposit the money and repay it in November. The bank even agreed to cover the interest.

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"Their managers kept calling me," said Mr Hu, whose firm in Zhejiang province near Shanghai is a valued client because of its steady cash flow and solid profits. "I didn't really need a loan, but I still agreed to help."

Known as "quick-lend-and-recover", the practice is spreading as banks come under unprecedented pressure to hit government-set targets that cannot be met by real demand, according to interviews with almost two dozen bankers.

The loans underscore a major challenge facing policymakers as China's economy slows: They can make funds cheaper and more abundant, but they cannot force people to borrow, spend or invest.

While targets vary from bank to bank, they have been told to lend at least as much as in 2024, said the bankers. They are worried that the number of borrowers could shrink even more over the final few months of 2025, at a time when record low margins and rising bad loans are already putting lenders under strain.

Retail clients are getting similar requests.