By staff reporter Fang Huilei

From Caijing Online

A dramatic increase in bank lending in January has attracted attention from investigators with China’s central bank and regulatory agencies, Caijing has learned.

The China Banking Regulatory Commission plans to investigate the huge cash flow after banks issued 1.62 trillion yuan in loans during the month. Notes trading represented 38 percent of the total credit.

Some analysts have claimed companies may be using government-encouraged bank loans to invest in the Chinese stock market, which has rallied since the start of the year.

Caijing learned that CBRC dispatched personnel to Shanghai to investigate the notes trading market. Regulations require banks to report the amount of notes traded, as well as the ultimate destination of these funds.

Following news that CBRC would investigate credit flows Friday, the Shanghai Composite Index slumped 2.93 percent to close at 2319.

Meanwhile, China’s central bank has decided to probe notes trading and determine whether these notes are backing foreign trade. Several insiders told Caijing the investigation is likely to start after the annual National People’s Congress in March.

A difference between bank lending and notes financing is that banks have little control over how notes traders use the money. Theoretically, cash could be dumped on the stock market.

A central bank executive told Caijing authorities are considering ways to use notes discount windows to encourage banks to provide notes financing to small- and medium-sized enterprises.

In general, big companies rather than SMEs benefit from notes financing. But authorities want to ensure that notes trading helps SMEs as well.