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Lending focus to change

ECONOMISTS expect China to focus on lending quality next year rather than issuing as much as in this year's credit tide despite official stated policy.

Last month the Political Bureau of the Central Committee of the Communist Party of China said the country would maintain its proactive fiscal policy and moderately loose monetary policy next year.

The Politburo meeting, presided by President Hu Jintao, set the tone for China's macroeconomics policy next year.

"Though the tone is the same, the focus of the policy is expected to be shifted," said Lu Zhengwei, Industrial Bank's senior economist.

Lu said he expected the fiscal budget will be channeled to more consumption-driving projects next year, rather than the heavy investment in infrastructure this year.

The monetary policy will focus more on retaining a steady and health growth of credit, rather than the surge of credit this year.

China's October new yuan credit grew at the smallest amount in a year as banks tightened credit terms.

Banks in China extended 253 billion yuan (US$37 billion) of new yuan loans in October, much less than the 370 billion yuan the market expected. Analysts said new credit is expected to shrink further in November.

Industrial Bank said it expected the November loan to drop to 100 billion yuan to 200 billion yuan as banks further squeezed loan offerings in seeking profitable loans.

In the first 10 months of this year, banks issued 8.92 trillion yuan of local-currency loans, 5.26 trillion yuan more than the same period a year ago. That already surpassed the government's 5-trillion-yuan target for 2009 set at the beginning of this year.

The tide of new credit has pumped up China's economic growth against the global slowdown but has also triggered fears of assets price bubbles as some credit has sneaked into the stock and real estate markets.

Economists said that China's rapid loan growth this year is unsustainable though they are divided on the timing of a policy turnaround.

Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co, told Bloomberg TV on Tuesday that she expects China's monetary policy to begin shifting towards a neutral stance perhaps in the middle of 2010.

She said the People's Bank of China will raise interest rates twice in the second half of next year after raising bank reserve ratios.


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