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Call for 'gradual' credit tightening

CHINA should gradually tighten up new yuan loans instead of a sudden curb on credit, according to a senior official at the Development Research Center under the State Council.

"The credit supply should be reduced in a gradual way," director of DRC's Research Institute of Finance Chen Daofu was quoted as saying by the China Securities Journals today.

"If the government squeezes credit too quickly and suddenly strengthens oversight over loan management, it would hurt the foundation for the economic recovery and dampen private investment."

China may have extended 320 billion yuan (US$46.8 billion) of new yuan lending in August, lower than a previous market expectation of 500 billion yuan, the CSJ said yesterday.

In July, new yuan-denominated loans hit a nine-month low of 356 billion yuan, in sharp contrast to the 1.53 trillion yuan in June as banks slowed their credit growth amid rising concerns of asset bubbles.

The credit reduction has led to big fluctuations in the equity markets. On Monday, Chinese shares slumped 6.74 percent - the most in 14 months - after media reports estimated bank lending continued to shrink in August.


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