Chinese banks rushed to meet their annual state-imposed lending quotas last month by buying up low-risk financial instruments rather than issuing loans, a surge that bankers and analysts said reflected financial institutions’ wariness about the country’s slowing economy.

The rise in demand for banker’s acceptances, which are guaranteed by their issuers and technically classified as loans, reduced the yield on the instruments to close to zero percent in the second half of December. A record low of 0.007 percent was reached on December 23.

That was far lower than Chinese banks’ average 2.5 percent cost of capital over the same period, implying that they preferred to lose money on low-yielding banker’s acceptances rather than risking greater losses by issuing their own loans at higher rates of interest.

President Xi Jinping’s administration wants banks to lend more, especially to small and medium-sized enterprises in government favored sectors such as agriculture and new energy vehicles. Banks are reluctant to do so, however, because they believe China’s slowing economy has reduced the pool of qualified borrowers.

Loan officers said buying up bankers’ acceptances to meet their year-end lending quotas was the safest way to back the government’s policy objectives.

“Supporting the broader economy is a political task we can’t say ‘no’ to,” said an executive at Zhongyuan Bank in the central city of Zhengzhou who asked not to be named. “Our losses from buying banker’s assurances are smaller than lending to unqualified businesses. ”

Companies use banker’s acceptances as a form of payment, which the holder can redeem with the issuing bank. They can also be bought and sold on open markets, such as the Shanghai Commercial Paper Exchange.

Loan officers told the Financial Times that Xi’s regulatory crackdown had hit many of their best borrowers in sectors such as real estate and private education, with no sign that conditions would improve soon.

“The authorities want us to support the real economy while keeping bad debts under control,” said a loan officer at Zheshang Bank in Hangzhou, who asked not to be identified. “That is difficult to achieve in the current business