Indicator expected to gradually fall through the year, say analysts

BEIJING - China's new yuan-dominated lending in April rose to 774 billion yuan ($113 billion) from 510.7 billion yuan in March, the People's Bank of China, the central bank, said on Tuesday even as analysts said it was a bit out of expectations.

New lending rose by nearly 182 billion yuan from the same period of last year and brought new loans in the first four months to more than 3.37 trillion yuan, almost half of the annual target of 7.5 trillion yuan.

"The figure is close to the highest market forecast of about 800 billion yuan and could have exceeded the target of monetary regulators," said Zhu Jianfang, chief macroeconomic analyst with Citic Securities.

China has set a target of 7.5 trillion yuan for new yuan loans this year and it has been reported that regulators have resorted to "window guidance" to ask commercial banks to lend less to meet that target.

"New yuan loans exceed expectations but are roughly in line with a controlled pace of loan growth, targeting 7.5 trillion yuan for 2010 as set by the China Banking Regulatory Commission (CBRC)," said a report from Nomura Securities.

The country's broad money supply (M2), which covers cash in circulation and all deposits, increased 21.48 percent year-on-year to about 65.66 trillion yuan by the end of April, the central bank said in a statement. It was 22.5 percent at the end of March.

The M2 growth is in line with expectations, Zhu said.

The narrow measure of money supply (M1), or cash in circulation plus current corporate deposits, climbed 31.25 percent from a year ago to 23.39 trillion yuan by the end of April. The growth was 29.94 percent in March.

China's new yuan loans reached an unprecedented 9.6 trillion yuan last year and are believed to have fueled problems like rising asset prices and mounting inflationary pressures, which policymakers are struggling to keep under control.

"Bank lending increased in April when compared with March, but this does not mean a pickup in lending is underway," said Tine Olsen, an economist at Moody's Analytics. "Total bank lending is still expected to gradually decline throughout the year," he said.

Authorities are worried about rising inflation and are curbing credit growth to contain prices, he said. Banks have been encouraged to slow lending, capital reserve requirements have been raised three times and restrictions on loans for second and third homes have also been put in place to tame fast-growing property prices.

A resumption of the issuance of three-year bills by the central bank has also helped to drain liquidity from the economy. "These actions are likely to result in continued moderation in money growth and bank lending in coming months," said Olsen.

The policies aimed to control excessive price rises could have been reflected in the data for April. Fixed asset investment growth slowed to 26.1 percent year-on-year. "Although this is still fast, it is nevertheless lower than the more than 30 percent growth rates seen last year. Industrial production growth also moderated in April," said Olsen.

China Daily

(China Daily 05/12/2010 page13)