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Economists warn as loans soar

ECONOMISTS said today that China's new loans this year could easily top 10 trillion yuan (US$1.46 trillion), doubling the beginning-of-the-year target, if new lending continues its current momentum.

Some are calling for a turnaround of the easing policy to avoid assets price bubbles and a new batch of bad loans.

New yuan lending more than doubled in June to 1.53 trillion yuan from May's 591.8 billion yuan, the People's Bank of China said, citing preliminary figures.
"Credit growth may have become faster than desired," said Sherman Chan, a Moody's economist, today. "Concerns about credit growth getting out of control in China are intensifying."

Chan said policymakers need to closely monitor credit growth.

"The most important task for the banking authorities now is to ensure lending practices remain prudent despite the urge felt by commercial banks to assist struggling businesses," she said.

In June, banks received 2 trillion yuan in new deposits. Economists said some of the deposits could be funds borrowed at relatively low rates.

As investor sentiment continues to improve in China, idle funds may eventually find their way into the stock and real estate markets, creating asset price bubbles, Chan said.

Ma Jun, Deutsche Bank chief economist in China, said a small adjustment of the easing monetary policy, such as window guidelines or issuing more central bank bills, might not be effective in curbing the over-expansion of credit.

He said it was necessary to start monthly lending quotas or slow down approvals for new projects.

"In reality, it is a little bit unlikely that we will make such a U-turn," Ma said. "However, if we take these measures in six months, it may be too late."


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