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Credit growth target over 5 trillion yuan

CHINA is aiming for a credit growth of more than 5 trillion yuan (US$732 billion) this year to shore up the economy, Premier Wen Jiabao said today.

The credit target is even more than the two-year 4-trillion-yuan stimulus package announced in November.

China will implement its "moderately easing" monetary policy and targets an M2 growth of 17 percent this year, Wen said. M2 is the broadest measure of money supply.

China will assure the volume of credit to support the economy and improve credit structure, he said.

China will curb credit to high polluting and high energy consuming industries, he stressed.

China shifted its monetary policy from tight to moderately easing and scrapped the lending quota in November to thaw liquidity. Banks are being encouraged to issue credit to revive the economy as China is now the only major economy that has avoided contraction.

Financial institutions in China extended 1.62 trillion yuan in new local-currency loans in January. At the same time, M2, including deposits and cash, climbed 18.8 percent from a year earlier, topping the central government's 17 percent annual target.

Though the February credit is yet to be posted, analysts expect around 1 trillion yuan in new lending to be reported.

"The 5-trillion-yuan credit target doesn't come as a surprise at all," said She Minhua, a China Securities Co analyst today. "Banks had already issued half of the whole-year credit in the first two months."

Banks tend to front-load their lending to take early profits.

The dash to ride on the government-encouraged profits and enjoy high quality loans is another driver for new lending in the first two months, said Qiu Zhicheng, a Haitong Securities Co analyst.

Qiu said credit growth will slow in the second half.

The flow of loans is generally welcomed amid a global credit crunch that has dried up funding for companies and consumers in other countries. Many countries are looking to China to weather the storm and help pull the world out of recession.

Su Ning, vice governor of the People's Bank of China, was reported on Wednesday to see no risks in the surge in new lending this year. The situation is "not serious" that credit is flowing into the stock market, Su said.

However, analysts have been worried that the surge of credit may be coupled with rising non-performing loans.

"The non-performing loan risk is increasing obviously. But given the time lag, we don't think this is a problem in 2009," China International Investment Corp said earlier.


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