China loans soar

February 11, 2010
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, BEIJING, Feb 11 – New lending in China surged last month, government data showed Thursday, but a lower-than-expected rate of inflation eased concerns that officials would move quickly to tighten the flow of credit.

Massive lending in 2009 in China has triggered fears that the excess liquidity is fuelling inflation and feeding a spending spree by speculators, leading to property and stock market bubbles.

But analysts said the 1.5 percent on-year increase in the consumer price index, the main gauge of inflation in January, was not enough to prompt the imposition of quick tightening measures in the world\’s third-largest economy.

New lending surged to 1.39 trillion yuan (203.5 billion dollars) in January, and property prices rocketed at the fastest rate since April 2008, government data showed.

The consumer price increase was mainly driven by food prices, which rose 3.7 percent during the first month of the year, the data released by the National Bureau of Statistics showed.

But inflation slowed from December, when prices rose 1.9 percent.

Analysts said tightening measures were unlikely in the short term, agreeing with central bank governor Zhou Xiaochuan\’s assessment that inflationary pressures would remain mild in the short term.

"Any systematic tightening across the board will… be based on careful analysis of the reasons for the price rises," such as an overheating of overall demand, said Zhang Zhizhou, an economist with CEB Monitor Group.

Economists at the Bank of Communications said excess liquidity should be reined in in a "timely manner" but said the end of China\’s loose monetary policy would be "gradual".

"It is not suitable to impose prompt, stiff tightening," they said in a note.

China took steps last month to calm growing inflationary pressures, as well as soaring stock and property prices caused by runaway bank lending, which nearly doubled in 2009 from a year before to 9.6 trillion yuan.

The People\’s Bank of China twice raised the interest rate on both its benchmark three-month and one-year treasury bills in a bid to deter new lending.

Last month, Credit Suisse said six banks had confirmed new lending had been suspended from January 19 until the beginning of February after an emergency meeting by the central bank’s monetary policy bureau.

It did not name the banks.

Chinese banks have also been ordered to increase their capital reserves — effectively limiting the amount of money they can lend — amid mounting fears over bad debts as consumers go on a spending spree on property and cars.

Property prices in 70 medium and large cities meanwhile rose 9.5 percent in January from the same month a year ago, the fastest pace since April 2008.

It was the eighth straight month property prices in Chinese cities surged year on year, after declining for six months since December 2008 due to government tightening measures and the financial crisis.

The prices increased by 1.3 percent last month from December, according to a statement on the National Bureau of Statistics website.

The bourses in Shanghai and Hong Kong were both up in early trade on the better-than-expected inflation data.

"This is good news for the market," Qian Qimin, an analyst for Shenyin Wanguo Securities, told Dow Jones Newswires.

"The inflation being slightly lower means less possibility for tightening measures in the near-term," Qian said.

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